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As filed with the Securities and Exchange Commission on May 26, 2023.
Registration Number 333-
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
Innovative Eyewear, Inc.
(Exact Name of Registrant as Specified in its Charter)
Florida | | 5995 | | 84-2794274 |
(State or other jurisdiction of incorporation or organization) | | (Primary Standard Industrial Classification Code Number) | | (I.R.S. Employer Identification No.) |
11900 Biscayne Blvd., Suite 630
North Miami, Florida, 33181
(954) 826-0329
(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant’s Principal Executive Offices)
Harrison Gross
Chief Executive Officer
11900 Biscayne Blvd., Suite 630
North Miami, Florida, 33181
(954) 826-0329
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent for Service)
with Copies to:
Barry I. Grossman, Esq.
Sarah W. Williams, Esq.
Ellenoff Grossman & Schole LLP
1345 Avenue of the Americas
New York, NY 10105
Phone: (212) 370-1300
Fax: (212) 370-7889
Approximate date of commencement of proposed sale to public:
As soon as practicable after the effective date hereof.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act, check the following box. ☒
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering. ☐
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering. ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐ | Non-accelerated filer | ☒ | Smaller reporting company | ☒ |
| | | Emerging growth company | ☒ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided to Section 7(a)(2)(B) of the Securities Act.
The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Commission, acting pursuant to Section 8(a), may determine.
The information contained in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
PRELIMINARY PROSPECTUS | SUBJECT TO COMPLETION | DATED MAY 26, 2023 |
Innovative Eyewear, Inc.
300,000 Shares of Common Stock
This prospectus relates to the resale of up to 300,000 shares of common stock, par value $0.00001 per share, of Innovative Eyewear, Inc. (“we,” “us,” “our,” or the “Company”), consisting of up to 300,000 shares of common stock issuable upon exercise of the warrants (the “April Warrants”) to purchase shares of common stock at an exercise price of $3.75 per share originally issued by us on April 19, 2023 in a private placement of warrants that occurred on April 17, 2023 (the “April Offering”).
This registration does not mean that the selling stockholders named herein will actually offer or sell any of these shares. We will not receive any proceeds from the resale of any of the shares of common stock being registered hereby sold by the selling stockholders. However, we may receive proceeds from the exercise of the April Warrants held by the selling stockholders exercised other than pursuant to any applicable cashless exercise provisions of such warrants.
Our common stock is listed on the Nasdaq Capital Market, or Nasdaq, under the symbol “LUCY”. On May 17, 2023 the last reported sale price of our common stock was $2.19 per share.
Following effectiveness of the registration statement of which this prospectus forms a part, the sale and distribution of securities offered hereby may be effected from time to time in one or more transaction that may take place on Nasdaq (or such other market or quotation system on which our common stock is then listed or quoted), including ordinary brokers’ transactions, privately negotiated transactions or through sales to one or more dealers for resale of such securities as principals, at market prices prevailing at the time of sale, at prices related to such prevailing market prices or at negotiated prices. Usual and customary or specifically negotiated brokerage fees or commissions may be paid by selling stockholders. The selling stockholders and intermediaries through whom such securities are sold may be deemed “underwriters” within the meaning of the Securities Act of 1933, as amended (the “Securities Act”), with respect to the securities offered hereby, and any profits realized or commissions received may be deemed underwriting compensation.
This prospectus describes the general manner in which shares of common stock may be offered and sold by any selling stockholders. When the selling stockholders sell shares of common stock under this prospectus, we may, if necessary and required by law, provide a prospectus supplement that will contain specific information about the terms of that offering. Any prospectus supplement may also add to, update, modify or replace information contained in this prospectus. We urge you to read carefully this prospectus, any accompanying prospectus supplement and any documents we incorporate by reference into this prospectus and any accompanying prospectus supplement before you make your investment decision.
We are an “emerging growth company” as that term is defined in the Jumpstart Our Business Startups Act of 2012 and, as such, have elected to take advantage of certain reduced public company reporting requirements for this prospectus and future filings.
Investing in our securities involves a high degree of risk. See “Risk Factors” beginning on page 11.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
Table of Contents
Please read this prospectus carefully. It describes our business, our financial condition and our results of operations. We have prepared this prospectus so that you will have the information necessary to make an informed investment decision. You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with any information or to make any representations about us, the securities being offered pursuant to this prospectus or any other matter discussed in this prospectus, other than the information and representations contained in this prospectus. If any other information or representation is given or made, such information or representation may not be relied upon as having been authorized by us.
The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of our common stock. Neither the delivery of this prospectus nor any distribution of securities in accordance with this prospectus shall, under any circumstances, imply that there has been no change in our affairs since the date of this prospectus. This prospectus will be updated and made available for delivery to the extent required by the federal securities laws.
We further note that the representations, warranties and covenants made by us in any document that is filed as an exhibit to the registration statement of which this prospectus is a part were made solely for the benefit of the parties to such agreement, including, in some cases, for the purpose of allocating risk among the parties to such agreements, and should not be deemed to be a representation, warranty or covenant to you. Moreover, such representations, warranties or covenants were accurate only as of the date when made. Accordingly, such representations, warranties and covenants should not be relied on as accurately representing the current state of our affairs.
This prospectus includes estimates, statistics and other industry data that we obtained from industry publications, research, surveys and studies conducted by third parties and publicly available information. Such data involves a number of assumptions and limitations and contains projections and estimates of the future performance of the industries in which we operate that are subject to a high degree of uncertainty. This prospectus also includes data based on our own internal estimates. We caution you not to give undue weight to such projections, assumptions and estimates.
This prospectus contains references to our trademarks and service marks and to those belonging to other entities. Solely for convenience, trademarks and trade names referred to in this prospectus may appear without the® or symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent possible under applicable law, our rights or the rights of the applicable licensor to these trademarks and trade names. We do not intend our use or display of other companies’ trade names, trademarks or service marks to imply a relationship with, or endorsement or sponsorship of us by any other companies.
Prospectus Summary
This summary highlights certain information appearing elsewhere in this prospectus. Because it is only a summary, it does not contain all of the information that you should consider before investing in our securities and it is qualified in its entirety by, and should be read in conjunction with, the more detailed information appearing elsewhere in this prospectus. Before you decide to invest in our securities, you should read the entire prospectus carefully, including “Risk Factors” beginning on page 11 and the financial statements and related notes included in this prospectus.
Unless the context indicates otherwise, as used in this prospectus, the terms “we,” “us,” “our,” “the Company,” “Innovative Eyewear” and “our business” refer to Innovative Eyewear, Inc.
Our Company
We develop and sell smart eyeglasses and sunglasses, which are designed to allow our customers to remain connected to their digital lives, while also offering prescription eyewear and sun protection. Founded and headquartered in Miami, Florida, we were initially organized as a Florida limited liability company effective August 15, 2019. We were founded by Lucyd Ltd., the inventor and licensor of the technology that our products are based upon which is a portfolio company of Tekcapital Europe Ltd. (“Tekcapital”). Tekcapital is a U.K. based university intellectual property accelerator. Tekcapital builds portfolio companies around new technologies. On March 26, 2020, we converted from a Florida limited liability company into a Florida corporation.
In January 2020, we introduced our first beta product and began market testing.
In January 2021, we officially launched our first commercial product, Lucyd Lyte® (“Lucyd Lyte”). This initial product offering embodied our goal of creating smart eyewear for all day wear that looks like and is priced similarly to designer eyewear, but is also light weight and comfortable, and enables the wearer to remain connected to their digital lives. The product was initially launched with six styles, and in September 2021, an additional six styles were added.
We recently launched version 2.0 of our Lucyd Lyte eyewear, and our current product offering consists of 16 version 1.0 models and 15 version 2.0 models, which offers a similar amount of style variety as many traditional eyewear collections. All styles are each available with 70 different lens types, resulting in hundreds of variations of products currently available.
Additionally, Lucyd Lyte glasses enable the wearer to listen to music, take and make calls, and use voice assistants to perform many common smartphone tasks hands-free. Some of the many things our customers can do with their Lucyd Lyte glasses include:
| 1. | “Send a voice message to (contact)”: this command begins the recording of an audio message to be sent to named contact. |
| 2. | “Send a text to (contact)”: begins recording of a speech-to-text message to be sent by SMS to named contact. |
| 3. | “Call (contact)”: speed-dials the named contact. |
| 4. | “Send $___ to (contact)”: this command allows our user to send money to a contact via Venmo or Apple Pay. Follow the digital assistant’s prompts to confirm. |
| 5. | “Check my messages”: this command reads out our user’s latest incoming text messages and offers a prompt to reply to each. Close out the digital assistant to end the readout. |
| 6. | “Check my mailbox”: this command announces the number of unread emails, and reads them out with a prompt to continue after each one. In the prompt after each one, our customers can tell their digital assistant “Reply” and dictate an email response to the previous email. |
| 7. | “Find (cuisine type) food nearby”: this command reads through a list of nearby restaurants and their ratings, and prompts our user for directions or to call after each one. |
| 8. | “Call me an Uber”: this command prompts our user on which type of Uber ride they want, then asks to confirm to send a car to our user’s location. |
| 9. | “What time is it?”: announces the current time. |
| 10. | “Play (song/album/artist)”: this command begins playing the requested song, album or artist via Apple Music. |
| 11. | “Get me directions to (location)”: this command begins navigating on phone, with audible directions on glasses. |
| 12. | “Take a memo”: this command begins recording a speech-to-text memo in Notes. Say “Read my Notes” to play back. |
Since the launch of Lucyd Lyte, we witnessed interest and demand from customers throughout the United States and have sold thousands of our smart glasses. Within six months of the launch of Lucyd Lyte, several optical stores in the United States and Canada have on- boarded the product and we have had discussions with several other large eyewear chains (by number of locations) regarding onboarding our product. We believe smart eyewear is a product category whose time has come, and we believe we are well positioned to capitalize on and help develop this exciting new sectorwhere eyewear meets electronics in a user-friendly, mass market format, priced similarly to designer eyewear.
In first quarter of 2022 we introduced a virtual try-on kiosk for select retail stores. This device introduces our products to prospective retail customers and enables them to digitally try-on our line of smart glasses in a touch free manner.
We anticipate introducing six styles of Nautica smart eyewear, six to twelve additional styles of Lucyd Lyte glasses, and our first Bluetooth safety glasses in 2023. In addition, we anticipate the following upgrades to accessory products in 2023:
| ● | The patent-pending Lucyd charging dock will be upgraded to feature a charging status LED and USB data capability, enabling it to be used as a USB hub for computers in addition to a charging hub. |
| ● | The Lucyd virtual try-on kiosk will be upgraded with a store control panel enabling the kiosk owner to change the display into Spanish language mode and control which frames and lens options are shown in the digital experience. |
In the fourth quarter of 2022, we introduced key features in the Vyrb app, including live broadcasts for up to 100 users in one digital “room”, and the ability to upload external audio content into Vyrb, enabling longstanding content creators to import their existing libraries swiftly into the platform. Also in the fourth quarter of 2022, we completed development of core audio eyewear product improvements, such as upgrading all frames to quadraphonic sound, which have been rolled out across all new eyewear models as of January 2023.
Recently in April 2023, we have introduced a major software upgrade for our glasses with the launch of the Lucyd app for iOS/Android. This free application enables the user to converse with the extremely popular ChatGPT AI language model on the glasses, to instantly gain the benefit of one of the world’s most powerful AI assistants in a handsfree ergonomic interface. The app deploys a powerful and unique Siri and Google Voice integration with the Open AI API for ChatGPT, developed internally by the company and now pending patent. This development instantly makes all Lucyd eyewear perhaps the smartest smartglasses available today, and represents a significant marketing opportunity for the company’s core smartglass product, and a potential in-app purchase revenue stream for the company.
Our Market Opportunity
According to Statista, the total addressable market for eyewear in the U.S. is projected to be $33.8 billion in 2023. The market for digital assistants like Siri, Google Voice, Bixby and Alexa has grown rapidly worldwide, and is projected at $4.5 billion in revenue in 2023. The worldwide hearables market was estimated at $69.0 billion in 2022. We view the popularity of hearables as an important catalyst for the smart eyewear market.
The common denominator among markets for the hearables and digital assistant is that they facilitate real-time access to digital data, whether it is through music, calls, navigational directions, or information, among other uses. The combination of hearables and digital assistants provides a transparent, ergonomic interface between the users and their digital lives. At Innovative Eyewear, we are dedicated to a touch-free interface and untethering our customers eyes from their smartphone screens, through our smart eyewear product.
The synergistic fusion of these three markets enables, in our view, an opportunity to create a completely new experience of connected eyewear, which smoothly delivers the functionality of both optical glasses and headphones, eliminating the need for either on its own. Nevertheless, several orthodoxies of the eyewear industry still hold, namely: if you want to sell a lot of eyewear, we believe it should be attractive, stylish, comfortable (e.g., lightweight, which we believe to be approximately 1oz) and cost roughly the same as traditional eyewear. This is what we have sought to achieve, and in our view have accomplished with the introduction of Lucyd Lyte eyewear.
Our Business Strategy
Whenwe organized Innovative Eyewear four years ago, there were, in our view, no attractive smart eyewear that addressed the basicconsumer need for good looking designer glasses that were stylish, comfortable, lightweight and provided the functionality ofhearables, and priced around the same as regular glasses.
All of our products are designed in Miami, manufactured in China, and sold through e-commerce, channels, including on our website (Lucyd.co), BestBuy.com, DicksSportingGoods.com and Amazon.com, or sold by over 200 optical and sporting goods retailers. Additionally, we are pursuing online and in-store big box retailers, and in-store and online specialty. Based on the existing demand for our products, our current distribution capabilities and our recently consummated supply agreements, we anticipate that our products will be available in a larger number of new third-party retail locations in 2023.
We believe that people care about what they wear on their faces, and because we understand that customers have diverse preferences about the shape, size, and design of their eyewear, we aim to continuously introduce new models in an effort to offer a wide variety of designs. We continuously present new models of eyewear to our network of followers to vote on those styles they find most appealing. We view this as community approved design.
Competition
The smart eyewear industry in which we operate is competitive and subject to changes in practice. While we believe that our products are hybrid of eyeglasses and audio technology, which gives us a unique product that provides us with competitive advantages, we may face competition from many different entities now and in the future. As of now, we face competition from the following products:
| ● | Bose Corporation’s Bose Frames. These are a Bluetooth eyewear product, but in a bulkier form factor and with what we believe to be comparable models at a higher list price ($249 MSRP) than Lucyd Lyte 2.0 ($199). |
| ● | Amazon’s Echo Glasses. Another entry in the Bluetooth eyewear space offered at a $249 list price. Not available directly from the manufacturer in prescription, and in only one frame shape. The cost of the Amazon Echo Glasses is higher than Lucyd Lyte. While lightweight like Lucyd Lyte glasses, Amazon Echo Glasses have, in our view, a less fashionable form factor, and the battery life is about half of that of Lucyd Lyte. |
| ● | Snapchat Spectacles. This is a camera-focused smart eyewear product and, in our view, not a direct competitor as to its style, weight, pricing and suitability for all-day wear, as compared with our products; however, Snapchat Spectacles may introduce further entries in the space that may directly compete with Lucyd Lyte. Snapchat Spectacles Version 3 have a list price of $380. |
| ● | Ray-Ban Stories Glasses. Developed in association with Facebook, are a camera-focused smart eyewear product, and despite the fact they are available in prescription, in our view not a direct competitor; Ray-Ban may, however, introduce further entries in the space that may directly compete with Lucyd Lyte. Ray-Ban Spectacles have a well-known and respected brand, and a list price starting at $299, which makes them 50% more expensive than Lucyd Lyte. They weigh considerably more (20-70% depending upon the Lyte model) than Lucyd Lyte glasses, have a shorter battery life, thicker temple profiles and are not water resistant. |
All of the competitors discussed above have substantially greater manufacturing, financial, research and development, personnel and marketing resources than we do. As a result, although we believe our products are currently superior, our competitors may be able to develop superior products, and compete more aggressively and sustain their competitive advantage over a longer period of time than us. Our products may be rendered obsolete in the face of competition.
Our Competitive Strengths
A Unique Solution to a Common Problem. While immensely useful, smartphones can present a safety hazard to motorists, pedestrians and cyclists because smartphones can distract people from the task or activity at hand. In 2021, pedestrian deaths were at a 40-year high according to the Governors Highway Safety Association, and experts believe smartphones were partially to blame. Recent data from the Governors Highway Safety Association indicates that from 2010 to 2020, the number of pedestrian deaths rose by 54%, while all other traffic deaths increased by 13% (Pedestrian Traffic Fatalities by State: 2021 Preliminary Data (https://www.ghsa.org/resources/Pedestrians22). We believe that the distraction created by smartphones originates in two forms: (1) via headphones or earbuds, where the user is deprived of full audible situational awareness; and, (2) via the visual interface of the phone, which distracts the user completely from their surroundings. Lucyd Lyte open ear audio helps address this problem by having the speakers mounted at the temples (in the arms) of the glasses. There is nothing in the ear canal and, as a result, individuals can better maintain situational awareness, such as hearing the traffic around them, as well as nearby sounds. Many of our competitors have relatively bulky speakers enclosed within the temples, while Lucyd Lyte’s speakers and temples are thin, which allows them to look similar to traditional designer glasses. Furthermore, through the quick and easy touch controls on the Lucyd Lyte, the wearer can perform many tasks that they would normally pull out their phone for, untethering the eyes of the user from their smartphones throughout the day and enabling them to remain more visually vigilant and aware of the traffic around them.
Affordable Price Point. Our Lucyd Lyte eyewear provides both optical-quality glasses and a Bluetooth headset together, at roughly the same price as a traditional pair of designer glasses, which is core to the disruptive potential of our product. Our Lucyd Lyte line of smart eyewear enables prescription and sunglass wearers to interact with digital assistants and social media without having to take their eyes off the road and are nearly handsfree, thereby improving the safety and convenience of taking calls, listening to music and audibly accessing digital information on the go. The Manufacturer’s Suggested Retail Price (“MSRP”) for Lucyd Lyte 2.0 eyewear starts at $199, with advanced options and customizations available at higher price points, which are at the discretion of the customer. A basic prescription lens upgrade is offered for $40. By comparison, most of our U.S.-based competitors offer products that are more expensive, starting at approximately $249 or higher, with higher costs to add prescriptions.
Quality. All of our frames can be outfitted in-house or by optical resellers with any combination of prescription, sunglass, readers and blue light formats. Our frame fronts are made with what we believe are high quality optical materials to ensure easy lens fitting by any optician.
Customizable Product Offering. There are 70 lens types available for Lucyd Lyte, making it the most customizable smart eyewear in the world. Innovative Eyewear has a partnership with a high-quality optical lab in Boston to produce prescription and custom lenses for our frames quickly and affordably. Our contract with a third-party optical lab also allows us to offer direct prescription fulfillment to our customers.
Comfort. At just 1.0-1.45 ounces, our eyewear has a feather-light fit, suitable for all day vision correction or sun protection (traditional glasses weigh about 1 ounce). This is especially important while on the go. Our 1.0 ounce titanium aviators are among the lightest smart eyewear ever made.
Long Battery Life. At 12 hours of playback per charge, Lucyd Lyte 2.0 glasses outpace most, if not all, of the competition on battery life.
Capital Light Business Model. All of our products are sold through multiple e-commerce channels, including on our website (Lucyd.co), BestBuy.com, DicksSportingGoods.com and Amazon.com, and are distributed through optical or other retailers (such as, but not limited to, Metro Optics Eyewear and Marca Eyewear Group, Inc.). We believe this capital light approach is highly scalable and efficient in the deployment of resources. We view “capital light” as being more efficient by obviating the need to build factories and retail stores, while partnering with existing companies in both of these groups.
Multi-channel approach. We sell our products both through multiple online channels and multiple categories of brick-and-mortar retail stores. We believe this multi-channel approach provides us with an advantage against our competitors who sell in a narrower selection of channels.
Experienced management team. We have an experienced board of directors with more than 80 years of combined experience in the eyewear industry, and a management team with substantial experience in software and electronics engineering and operating eyewear and technology companies.
Exercise of Warrants Issued in our Initial Public Offering (the “Listed Warrants”)
Since December 31, 2022, holders of the Listed Warrants issued in our initial public offering have exercised 879,720 Listed Warrants for 879,720 shares of our common stock at an exercise price of $3.75 per share.
Risks Associated with our Business
Our business and ability to execute our business strategy are subject to a number of risks of which you should be aware before you decide to buy our common stock. In particular, you should carefully consider the following risks, which are discussed more fully in the section entitled “Risk Factors” in this prospectus:
| ● | The optical industry is highly competitive, and if we do not compete successfully, our business may be adversely impacted. |
| ● | We have a history of losses, and we may be unable to achieve or sustain profitability. |
| ● | We have limited experience in scaling a smart eyewear business. If we are unable to manage our expected growth effectively, our brand “Lucyd”, and financial performance may suffer, which may have a material adverse effect on our business, financial condition, and operating results. |
| ● | Our ability to generate net revenue will depend upon many factors, some of which we may have no control over. |
| ● | Increases in component costs, shipping costs, long lead times, supply shortages, and supply changes could disrupt our supply chain; factors such as wage rate increases and inflation can have a material adverse effect on our business, financial condition, and operating results. |
| ● | We currently derive all of our revenue from sales of our glasses. A decline in sales of our eyewear would negatively affect our business, financial condition, and results of operation. |
| ● | We face significant risks due to our dependency on foreign supply and manufacturing chains, geopolitical and economic changes, and changes in public perception about internationally sourced and manufactured products. |
| ● | If we fail to cost-effectively retain our existing customers or to acquire new customers, our business, financial condition, and results of operations would be harmed. |
| ● | Our profitability and cash flows may be negatively affected if we are not successful in managing our inventory balances and inventory shrinkage. |
| ● | If we fail to maintain and enhance our brand, our ability to engage or expand our base of customers will be impaired, and our business, financial condition, and results of operations may suffer. |
| ● | We rely heavily on our information technology systems, as well as those of our third-party vendors, business partners, and service providers, for our business to effectively operate and to safeguard confidential information; any significant failure, inadequacy, interruption, or data security incident could adversely affect our business, financial condition, and operations. |
| ● | Our e-commerce and multichannel channel business faces distinct risks, and our failure to successfully manage it could have a negative impact on our profitability. |
| ● | If we fail to adapt and respond effectively to rapidly changing technology, evolving industry standards and changing customer needs or requirements, our solutions may become less competitive. |
| ● | We depend on highly skilled personnel to grow and operate our business, and if we are unable to hire, retain, and motivate our personnel, we may not be able to grow effectively. |
| ● | Certain technological advances, greater availability of, or increased consumer preferences for, vision correction alternatives to prescription eyeglasses or contact lenses, and future drug development for the correction of vision-related problems may reduce the demand for our products and adversely impact our business and profitability. |
| ● | We could be adversely affected by product liability, product recall or personal injury issues. |
| ● | We license our technology from Lucyd Ltd., the majority stockholder of the Company, and our inability to maintain this license could materially affect our business, financial condition, and operating results. |
| ● | Failure to adequately maintain and protect our intellectual property and proprietary rights could harm our brand, devalue our proprietary content, and adversely affect our ability to compete effectively. |
| ● | We may incur costs to defend against, face liability or for being vulnerable to intellectual property infringement claims brought against us by others. |
| ● | We face risks associated with suppliers from whom our products are sourced and are dependent on a limited number of suppliers. |
| ● | Our projects could be hindered due to our dependence on third parties to complete many of our contracts. |
| ● | We depend on search engines, social media platforms, digital application stores, content-based online advertising, and other online sources to attract consumers to and promote our website and our mobile applications, which may be affected by third-party interference beyond our control; and, as we grow, our the cost of acquiring new customers may continue to rise and become uneconomical. |
| ● | Our directors, executive officers and principal stockholders will continue to have substantial control over our company after this offering, which could limit your ability to influence the outcome of key transactions, including a change of control. |
| ● | The market price of our common stock has been volatile and can fluctuate substantially, which could result in substantial losses for purchasers of our Units in this offering. |
| ● | Our management will have broad discretion in how we use the net proceeds of this offering and might not use them effectively. |
| ● | You will experience immediate and substantial dilution as a result of this offering and may experience additional dilution in the future. |
| ● | The best-efforts structure of this offering may have an adverse effect on our business plan. |
Corporate Information
We were initially organized as a limited liability company under the laws of the State of Florida on August 15, 2019. We converted the Company from a Florida limited liability company into a Florida corporation on March 25, 2020. Our principal executive office is located at 11900 Biscayne Blvd., Suite 630, North Miami, FL, 33181, and our phone number is (786) 785-5178. We maintain a website at www.lucyd.co. Following the effectiveness of the registration statement of which this prospectus is a part, we intend to announce material information to the public through filings with the SEC, the investor relations page of our website, as well as press releases, public conference calls, and investor conferences.
The reference to our website is intended to be an inactive textual reference only. The information contained on, or that can be accessed through, our website is not part of this prospectus and investors should not rely on such information in deciding whether to purchase shares of our common stock.
Our “Lucyd” logo, the Lucyd Lyte name and the slogan “Upgrade your Eyewear” and our other registered or common law trademarks mentioned in this prospectus are the exclusive licensed property of Innovative Eyewear Inc. Other trade names, trademarks, and service used in this prospectus are the property of their respective owners.
Implications of Being an Emerging Growth Company
We qualify as an “emerging growth company” as defined under the Securities Act of 1933, as amended (the “Securities Act”). As a result, we are permitted to, and intend to, rely on exemptions from certain disclosure requirements that are otherwise applicable to public companies. These provisions include, but are not limited to:
| ● | being permitted to present only two years of audited financial statements and only two years of related “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this prospectus; |
| ● | not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, as amended (or the Sarbanes-Oxley Act); |
| ● | reduced disclosure obligations regarding executive compensation in our periodic reports, proxy statements and registration statements; and |
| ● | exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. |
In addition, an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. This provision allows an emerging growth company to delay the adoption of some accounting standards until those standards would otherwise apply to private companies. We have elected to avail ourselves of this extended transition period. We will remain an emerging growth company until the earliest to occur of: (i) our reporting $1.235 billion or more in annual gross revenues; (ii) the end of fiscal year 2028; (iii) our issuance, in a three year period, of more than $1 billion in non-convertible debt; and (iv) the end of the fiscal year in which the market value of our common stock held by non-affiliates exceeded $700 million on the last business day of our second fiscal quarter.
We have elected to take advantage of certain of the reduced disclosure obligations and may elect to take advantage of other reduced reporting requirements in future filings. As a result, the information that we provide to our stockholders may be different than the information you might receive from other public reporting companies in which you hold equity interests.
To the extent that we continue to qualify as a “smaller reporting company,” as such term is defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended, after we cease to qualify as an “emerging growth company,” certain of the exemptions available to us as an “emerging growth company” may continue to be available to us as a smaller reporting company, including: (1) not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act; (2) scaled executive compensation disclosures; and (3) the ability to provide only two years of audited financial statements, instead of three years.
The Offering
Common stock outstanding. | | 8,417,239 shares as of May 17, 2023. |
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Common stock offered by Selling Shareholders: | | 300,000 shares. |
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Common stock to be outstanding after this offering(1) | | 8,717,239 shares (assuming the exercise of all of the April Warrants) |
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Use of proceeds | | We will not receive any proceeds from the sale of the common stock by the selling stockholders. We may receive proceeds upon the exercise of the April Warrants (to the extent the registration statement of which this prospectus is a part is then effective and, if applicable, the “cashless exercise” provision is not utilized by the holder). Any proceeds will be used for general corporate and working capital or for other purposes that the Board of Directors, in their good faith, deems to be in the best interest of the Company. No assurances can be given that any of such warrants will be exercised. See “Use of Proceeds.” |
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Nasdaq Symbol and Trading | | Our common stock and our Listed Warrants are currently listed on Nasdaq under the symbols “LUCY” and “LUCYW,” respectively. |
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Risk Factors | | Investing in our securities involves a high degree of risk. See “Risk Factors” beginning on page 11 and the other information in this prospectus for a discussion of the factors you should consider carefully before you decide to invest in our securities. |
The number of shares of our common stock to be outstanding upon completion of this offering is based on 8,417,239 shares of our common stock outstanding as of May 17, 2023, and excludes:
| ● | 2,464,500 shares of common stock issuable upon exercise of stock options, at a weighted average exercise price of $2.39 per share; |
| ● | 1,080,280 shares of common stock issuable upon exercise of our Listed Warrants, at an exercise price of $3.75 per share; |
| ● | 58,800 shares of common stock issuable upon exercise of the representative’s warrants issued to Maxim Group LLC in connection with our initial public offering, at an exercise price of $8.228 per share; and |
| ● | 165,931 shares of our common stock reserved for future issuance under our 2021 Equity Incentive Plan. |
Cautionary Note Regarding Forward-Looking Statements
Certain statements in this prospectus may contain “forward-looking statements” within the meaning of the federal securities laws. Our forward-looking statements include, but are not limited to, statements about us and our industry, as well as statements regarding our or our management team’s expectations, hopes, beliefs, intentions or strategies regarding the future. Additionally, any statements that refer to projections, forecasts or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. We intend the forward-looking statements to be covered by the safe harbor provisions of the federal securities laws. Words such as “may,” “should,” “could,” “would,” “predicts,” “potential,” “continue,” “expects,” “anticipates,” “future,” “intends,” “plans,” “believes,” “estimates,” and similar expressions, as well as statements in future tense, may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking.
Forward-looking statements should not be read as a guarantee of future performance or results and may not be accurate indications of when such performance or results will be achieved. Forward-looking statements are based on information we have when those statements are made or management’s good faith belief as of that time with respect to future events, and are subject to significant risks and uncertainties that could cause actual performance or results to differ materially from those expressed in or suggested by the forward-looking statements. Important factors that could cause such differences include, but are not limited to:
| ● | our lack of operating history; |
| ● | our relationships with our current customers; |
| ● | our expectations regarding the time during which we will be an emerging growth company under the JOBS Act; |
| ● | our estimates regarding future revenue, expenses and needs for additional financing; |
| ● | our ability to compete in our industry; |
| ● | our ability to expand the number of retail stores that sell our products; |
| ● | our ability to expand the production of our products; |
| ● | the impact of governmental laws and regulation; |
| ● | difficulties with certain vendors, suppliers and distributors we rely on or will rely on; |
| ● | failure to maintain our corporate culture as we grow and changes in consumer recognition of our brand; |
| ● | changes in senior management, loss of one or more key personnel or an inability to attract, hire, integrate and retain highly skilled personnel; |
| ● | the ability of our product to perform in a safe and efficient manner; and |
| ● | our ability to adapt and respond effectively to rapidly changing technology, evolving industry standards and changing customer needs or requirements. |
The foregoing does not represent an exhaustive list of matters that may be covered by the forward-looking statements contained herein or risk factors that we are faced with. Forward-looking statements necessarily involve risks and uncertainties, and our actual results could differ materially from those anticipated in the forward-looking statements due to a number of factors, including those set forth under the section of this prospectus entitled “Risk Factors” elsewhere in this prospectus. The factors set forth under the “Risk Factors” section and other cautionary statements made in this prospectus should be read and understood as being applicable to all related forward-looking statements wherever they appear in this prospectus. The forward-looking statements contained in this prospectus represent our judgment as of the date of this prospectus. We caution readers not to place undue reliance on such statements. Except as required by law, we undertake no obligation to update publicly any forward-looking statements for any reason, even if new information becomes available or other events occur in the future. All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements contained above and throughout this prospectus.
Risk Factors
Any investment in our common stock involves a high degree of risk. You should carefully consider the risks described below, which we believe represent certain of the material risks to our business, together with the information contained elsewhere in this prospectus, before you make a decision to invest in our securities. Please note that the risks highlighted here are not the only ones that we may face. For example, additional risks presently unknown to us or that we currently consider immaterial or unlikely to occur could also impair our operations. If any of the following events occur or any additional risks presently unknown to us actually occur, our business, financial condition and operating results may be materially adversely affected. In that event, the trading price of our securities could decline and you could lose all or part of your investment.
Risks Relating to Our Business, Strategy and Industry
The optical industry is highly competitive, and if we do not compete successfully, our business may be adversely impacted.
We compete directly with large, integrated optical players that sell both at the retail level and online such as Ray-Ban® that have multiple products, well regarded brands and retail banners, as well as established and well-regarded consumer electronics companies such as Bose®. This diversified and capable competition takes place both in physical retail locations as well as online, for smart glasses. To compete effectively, we must continue to create, invest in, or acquire, advanced technology, incorporate this technology into our products, obtain regulatory approvals in a timely manner where required, and process and successfully market our products.
Most if not all of our competitors have significantly greater financial and operational resources, longer operating histories, greater brand recognition, and broader geographic presence than we do. As a result, they may be able to outmaneuver us in the marketplace and offer capable products at more competitive prices, which may adversely affect our business. They also are able to spend far more than we do for advertising. We may be at a substantial disadvantage to larger competitors with greater economies of scale. If our costs are greater compared to those of our competitors, the pricing of our products may not be as attractive, thus depressing sales or the profitability of our products and services. Our competitors may expand into markets in which we currently operate, and we remain vulnerable to the marketing power and high level of customer recognition of these larger competitors and to the risk that these competitors or others could attract our customer base. Some of our competitors are vertically integrated and are also engaged in the manufacture and distribution of glasses and many of our competitors operate under a variety of brands and price points. These competitors can advantageously leverage this structure to better compete and access the market with significant market power could make it more difficult for us to compete. We purchase some of our product components from suppliers who may be affiliates of one or more competitors or may compete with ourselves in the future.
We may not continue to be able to successfully compete against existing or future competitors. Our inability to respond effectively to competitive pressures, improved performance by our competitors, and changes in the retail and e-commerce markets could result in lost market share and have a material adverse effect on our business, financial condition, and results of operations.
We have a history of losses, and we may be unable to achieve or sustain profitability.
We had a net loss of $1,430,810 for the three months ended March 31, 2023, a net loss of $5,681,833 for the year ended December 31, 2022, and a net loss of $3,244,506 for the year ended December 31, 2021. As of March 31, 2023, we had an accumulated deficit of $11,736,797. Because we have a short operating history it is difficult for us to predict our future operating results. We will need to generate and sustain increased revenue and manage our costs to achieve profitability. Even if we do, we may not be able become or increase our profitability.
Our ability to generate profit depends on our ability to strengthen and expand our brand, continue to provide exciting products customers love, expand sales and improve margins. We are aiming to achieve profitability in the next two years, and between now and then we plan to efficiently invest in the business to bring it to scale by:
| ● | enhancing our products with new designs, functionality, and technology to widen our appeal and delight customers in a wide variety of demographic groups; and, |
| ● | investing in our product development, supply chain and sales and marketing capabilities to leverage external resources as efficiently as possible to ensure that smart glasses are affordable for the majority of the world’s population who need them. |
However, we may not succeed in any of the foregoing, and the planned investments may not result in profitability.
We have limited experience in the smart eyewear space. If we are unable to manage our growth effectively, our brand “Lucyd”, and our financial performance may suffer, which may have a material adverse effect on our business, financial condition, and operating results.
The smart eyewear industry is newly emerging. Whilst our directors have more than 80 years of combined experience in the eyewear industry, the smart eyewear market presents numerous new challenges. To effectively manage these challenges and continue to grow, we must continue to invest in the design of new frames and technology, expand our product line and effectively integrate several new technologies into eyewear. Achieving this could strain our existing resources, and we could experience ongoing operating difficulties in managing our business and bringing it to scale. Failure to scale could harm our competitive position and future success, including our ability to retain and recruit personnel and to effectively execute our corporate objectives.
Our ability to generate net revenue will depend upon many factors, some of which we may have no control over.
The industry for stylish, affordable smart glasses, is rapidly evolving and may not develop as we expect. Even if our net revenue continues to increase, our net revenue growth rates may decline in the future as a result of a variety of factors, including macroeconomic factors, increased competition, and the maturation of our business. As a result, you should not rely on our net revenue growth rate for any prior period as an indication of our future performance. Overall growth of our net revenue will depend on a number of factors, including our ability to:
| ● | Increase exogenous distribution of our products in optical stores, big box retailers, specialty retailers and through multiple e-commerce channels; |
| ● | Price our products so that we are able to attract new customers, and expand our relationships with existing customers; |
| ● | Accurately forecast our net revenue and plan our operating expenses accordingly; |
| ● | Successfully compete with other companies that are currently in, or may in the future enter, the smart eyewear industry or the markets in which we compete, and respond to developments from these competitors such as pricing changes and the introduction of new products and features, noting that most, if not all, of our competitors have stronger balance sheets and larger staffs to devote to their products; |
| ● | Comply with existing and new laws and regulations applicable to our business; |
| ● | Develop new product offerings, with services and features, including in response to new trends, competitive dynamics, or the needs of customers; |
| ● | Successfully identify and acquire or invest in businesses, products, or technologies that we believe could complement or expand our business; |
| ● | Avoid interruptions or disruptions in our supply chain from natural disasters and political uncertainty; |
| ● | Provide customers with a high-quality experience and customer service and support that meets their needs; |
| ● | Hire, integrate, and retain talented sales, customer experience, product design, and development and other personnel; |
| ● | Effectively manage growth of our business, personnel, and operations; |
| ● | Effectively manage our costs related to our business and operations; and, |
| ● | Enhance our reputation and the value of the Lucyd brand. |
Because we have a limited history operating our business, it is difficult to evaluate our current business and future prospects, including our ability to plan for and model future growth. Our limited operating experience combined with the rapidly evolving nature of the market in which we sell our products and services, substantial uncertainty concerning how these markets may develop, and other economic factors beyond our control, reduces our ability to accurately forecast quarterly or annual revenue. Failure to manage our future growth effectively could have an adverse effect on our business, financial condition, and operating results.
We also expect to continue to expend substantial financial and other resources to grow our business, and we may fail to allocate our resources in a manner that results in increased net revenue growth in our business. Additionally, we may encounter unforeseen operating expenses, difficulties, complications, delays, and other unknown factors that may result in losses in future periods. If our net revenue growth does not meet our expectations in future periods, our business, financial condition, and results of operations may be harmed, and we may not achieve or sustain profitability in the future.
Increases in component costs, shipping costs, long lead times, supply shortages, and supply changes could disrupt our supply chain and factors such as wage rate increases and inflation can have a material adverse effect on our business, financial condition, and operating results.
Meeting customer demand partially depends on our ability to obtain timely and adequate delivery of components for our products and services. All of the components that go into the manufacturing of our products and services are sourced from a limited number of third-party suppliers predominantly in the U.S., and China. Our contract manufacturers purchase and provide many of these components on our behalf, including sun lenses, demo lenses, hinge and chip sets and other electronic components, and we do not have long-term arrangements with most of our component suppliers. We are therefore subject to the risk of shortages and long lead times in the supply of these components and the risk that our suppliers discontinue or modify components used in our products. In addition, the lead times associated with certain components are lengthy and may preclude rapid changes in design, quantities, and delivery schedules. Our ability to meet temporary unforeseen increases in demand has been, and may in the future be, impacted by our reliance on the availability of components from these suppliers. We may in the future experience component shortages, and the predictability of the availability of these components may be limited, which may be heightened in light of Covid-19 safety measures undertaken in China, our principal country of manufacturing. In the event of a component shortage or supply interruption from suppliers of these components, we may experience supply chain delays. Developing alternate sources of supply for these components may be time-consuming, difficult, and costly, and we may not be able to source these components on terms that are acceptable to us, or at all, which may undermine our ability to fill our orders in a timely manner. Any interruption or delay in the supply of any of these parts or components, or the inability to obtain these parts or components from alternate sources at acceptable prices and within a reasonable amount of time, would harm our ability to timely ship our products to our customers.
In addition, substantially all of our components are shipped directly from our contract manufacturers to our warehouse facility in Miami or to a third-party optical laboratory in the United States, where lenses are cut and mounted into frames. These laboratories process most of the glasses ordered by our customers. Once processed at the laboratories, the finished products are then sorted and shipped using third-party carriers to our customers. Our eyeglasses are also shipped directly to our third-party distribution center in the United States for shipment directly to our customers and resellers. We depend in large part on the orderly operation of this distribution process, which depends, in turn, on adherence to shipping schedules and effective management of our optical laboratory network and third-party distribution center. Increases in transportation costs (including increases in fuel costs), issues with overseas shipments, supplier-side delays, as well as reductions in the transportation capacity of carriers, labor strikes or shortages in the transportation industry, disruptions to the national and international transportation infrastructure, and unexpected delivery interruptions or delays also have the potential to derail our distribution process.
Moreover, volatile economic conditions may make it more likely that our suppliers and logistics providers may be unable to timely deliver supplies, or at all, and there is no guarantee that we will be able to timely locate alternative suppliers of comparable quality at an acceptable price. In addition, international supply chains may be impacted by events outside of our control, including but not limited to the COVID-19 pandemic, and limit our ability to procure timely delivery of supplies or finished goods and services. We face additional risks related to the manufacturing facility we contract with in China and suppliers in China, including port of entry risks such as longshoremen strikes, import restrictions, foreign government regulations, trade restrictions, customs, and duties.
We source components from suppliers located in China. Effective September 1, 2019, the U.S. government implemented a 15% tariff on specified products imported into the U.S. from China and effective February 14, 2020, the 15% tariff was reduced to 7.5%. In June 2020, the U.S. government granted a temporary exclusion for plastic and metal frames with a retroactive effective date of September 1, 2019, and such exclusion expired in September 2020. Given the recent change in the U.S. presidential administration, there is uncertainty whether there will be, and the resulting impacts of, any changes to U.S. government trade policy. If we are unable to mitigate the full impact of the enacted tariffs or if there is a further escalation of tariffs, costs on a significant portion of our products may increase further and our financial results may be negatively affected. While it is too early to predict how the current and future China tariffs will impact our business, our financial results may also be impacted by any resulting economic slowdown.
The inability to fulfill, or any delays in processing, customer orders through third party optical laboratory optical laboratory could result in the loss of customers, issuances of refunds or credits, and may also adversely affect our income and reputation. The success of our retail and e-commerce sales depends on the timely receipt of products by our customers and any repeated, intermittent or long-term disruption in, or failures of, the operations of our distribution center and/or optical laboratories could result in lower sales and profitability, a loss of loyalty to our brands, and excess inventory.
Furthermore, increases in compensation, wage pressure, and other expenses for our employees, may adversely affect our profitability. Increases in minimum wages and other wage and hour regulations can exacerbate this risk. These cost increases may be the result of inflationary pressures which could further reduce our sales or profitability. Increases in other operating costs, may increase our cost of products sold or selling, general, and administrative expenses. Our competitive price model and pricing pressures in the optical retail industry may inhibit our ability to reflect these increased costs in the prices of our products, in which case such increased costs could have a material adverse effect on our business, financial condition, and results of operations.
We currently derive all of our revenue from sales of our glasses. A decline in sales of our eyewear would negatively affect our business, financial condition, and results of operations.
We derive all of our revenue from the sale of one product line, our Lucyd Lyte smart eyewear. Our glasses are sold in highly competitive markets with limited barriers to entry. Introduction by competitors of comparable products at lower price points, a maturing product lifecycle, a decline in consumer spending, or other factors could result in a material decline in our revenue. Because we derive most of our revenue from the sale of our glasses, any material decline in sales of our glasses would have a material adverse impact on our business, financial condition, and operating results.
We face significant risks due to our dependency on foreign supply and manufacturing chains, geopolitical and economic changes, and changes in public perception about internationally sourced and manufactured products.
Since our component materials are sourced in China, our production may face additional risks such as, but not limited to: increased shipping costs, imposition of additional import or trade restrictions, increased custom duties and tariffs, legal or economic restrictions on our supplier and manufacturer’s ability to meet our needs, unforeseen delays in customs clearance of goods, transportation delays, issues with ports of entry, new and adverse foreign government regulations, political instability, war, natural disasters, and overall economic uncertainty. Our overseas sourcing and manufacturing could also suffer due to health-related concerns surrounding infectious diseases, such as Covid-19 safety measures in China, our primary country of supply. Public opinion about internationally sourced and manufactured products could be changed by negative press, which could have an impact on our customers’ confidence and satisfaction and could also have a negative impact on our public image and brand perception.
If we fail to cost-effectively retain our existing customers or to acquire new customers, our business, financial condition, and results of operations would be harmed.
The growth of our business is dependent upon our ability to continue to grow by cost-effectively retaining our existing customers and adding new customers. Although we believe that many customers originate from word-of-mouth and paid and non-paid referrals, we expect to continue to expend resources and run marketing campaigns to acquire additional customers, all of which could impact our overall profitability. If we are not able to continue to expand our customer base, or fail to retain customers, our net revenue will grow slower than expected or decline.
The growth of our e-commerce channel is critical to our continued customer retention and growth. Historically, consumers have been slower to adopt online shopping for glasses than e-commerce offerings in other industries such as consumer electronics and apparel. Improving upon the consumer in-store experience through an online platform is difficult due to broad consumer demands on selection, quality, convenience, and affordability. Changing traditional optical retail habits is difficult, and if consumers and retailers do not embrace smart eyewear as we expect, our business and operations could be harmed.
Our ability to attract new customers and increase net revenue from existing customers also depends in large part on our ability to enhance and improve our existing products and to introduce new products and services, in each case, in a timely manner. We also must be able to identify and originate styles and trends as well as to anticipate and react to changing consumer demands in a timely manner. The success of new and/or enhanced products and services depends on several factors, including their timely introduction and completion, sufficient demand, and cost-effectiveness. New products that we develop may not be well received and could negatively impact our financial performance.
Our number of customers may decline materially or fluctuate as a result of many factors, including, among other things:
| ● | the quality, consumer appeal, price, and reliability of products and services offered by us; |
| ● | intense competition in the optical retail industry by better financed participants; |
| ● | negative publicity related to our brand or brand influencers; |
| ● | the impact of the COVID-19 pandemic or a future outbreak of disease or similar public health concern; |
| ● | customer dissatisfaction with changes we make to our products and services. |
In addition, if we are unable to provide high-quality support to customers or help resolve issues in a timely and acceptable manner, our ability to attract new customers and retain customers could be adversely affected. If our number of customers declines or fluctuates for any of these reasons among others, our business would suffer.
Our profitability and cash flows may be negatively affected if we are not successful in managing our inventory balances and inventory shrinkage.
Efficient inventory management is a key component of our business success and profitability. To be successful, we must maintain sufficient inventory levels to meet our customers’ demands without allowing those levels to increase to such an extent that the costs to hold the goods unduly impact our financial results. We must balance the need to maintain inventory levels that are sufficient to ensure competitive lead times against the risk of inventory obsolescence because of changing customer requirements, fluctuating commodity prices, changes to our products, product transfers, or the life cycle of our products. If we fail to adequately forecast demand for any product, or fail to determine the optimal product mix for production purposes, we may face production capacity issues in processing sufficient quantities of a given product. If our buying and distribution decisions do not accurately predict customer trends or spending levels in general or if we inappropriately price products, we may have to record potential write-downs relating to the value of obsolete or excess inventory. Conversely, if we underestimate future demand for a particular product or do not respond quickly enough to replenish our best performing products, we may have a shortfall in inventory of such products, likely leading to unfulfilled orders, reduced net revenue, and customer dissatisfaction. In addition, because we source components from suppliers located in China, our inventory management may be impacted by enactment or further escalation of tariffs, import restrictions, foreign government regulations, trade restrictions, customs, and duties.
Maintaining adequate inventory requires significant attention and monitoring of market trends, local markets, developments with suppliers, and our distribution network, and it is not certain that we will be effective in our inventory management.
If we fail to maintain and enhance our brand, our ability to engage or expand our base of customers will be impaired, and our business, financial condition, and results of operations may suffer.
Maintaining and enhancing our appeal and reputation as a stylish, innovative, and coveted brand is critical to attracting and expanding our relationships with customers. The successful promotion of our brand and the market’s awareness of our products and services will depend on a number of factors, including our marketing efforts, ability to continue to develop our products and services, and ability to successfully differentiate our offerings from competitive offerings. We expect to invest substantial resources to promote and maintain our brand, but there is no guarantee that our brand development strategies will enhance the recognition of our brand or lead to increased sales. The strength of our brand will depend largely on our ability to provide stylish, technologically enhanced products and quality services at competitive prices. Brand promotion activities may not yield increased net revenue, and even if they do, the increased net revenue may not offset the expenses we incur in promoting and maintaining our brand and reputation. In order to protect our brand, we also plan to expend substantial resources to register and defend our trademarks and to prevent others from using the same or substantially similar marks. Despite these efforts, we and Lucyd Ltd. may not always be successful in protecting the trademarks we license from Lucyd Ltd. Our trademarks may be diluted, and we may suffer harm to our reputation, or other harm to our brand. If our efforts to cost-effectively promote and maintain our brand are not successful, our results of operations and our ability to attract and engage customers, partners, and employees may be adversely affected.
Unfavorable publicity regarding our products, customer service, or privacy and security practices could also harm our reputation and diminish confidence in, and the use of, our products and services. In addition, negative publicity related to key brands that we have partnered with may damage our reputation, even if the publicity is not directly related to us. If we fail to maintain, protect, and enhance our brand successfully or to maintain loyalty among customers, or if we incur substantial expenses in unsuccessful attempts to maintain, protect, and enhance our brand, we may fail to attract or increase the engagement of customers, and our business, financial condition, and results of operations may suffer.
We rely heavily on our information technology systems, as well as those of our third-party vendors, business partners, and service providers, for our business to effectively operate and to safeguard confidential information; any significant failure, inadequacy, interruption, or data security incident could adversely affect our business, financial condition, and operations.
We rely heavily on our in-house information technology and enterprise resource planning systems for many functions across our operations, including managing our supply chain and inventory, processing customer transactions in our stores, allocating lens processing jobs to the appropriate laboratories, our financial accounting and reporting, compensating our employees, and operating our website, mobile applications and in-store systems. Our ability to effectively manage our business and coordinate the manufacturing, sourcing, distribution, and sale of our products depends significantly on the reliability and capacity of these systems. We are critically dependent on the integrity, security, and consistent operations of these systems, which are highly reliant on the coordination of our internal business and engineering teams. We also collect, process, and store sensitive and confidential information, including our proprietary business information and that of our customers, employees, suppliers, and business partners. The secure processing, maintenance, and transmission of this information is critical to our operations.
Our systems may be subject to damage or interruption from power outages or damages, telecommunications problems, data corruption, software errors, network failures, acts of war or terrorist attacks, fire, flood, global pandemics, and natural disasters; our existing safety systems, data backup, access protection, user management, and information technology emergency planning may not be sufficient to prevent data loss or long-term network outages. In addition, we may have to upgrade our existing information technology systems or choose to incorporate new technology systems from time to time in order for such systems to support the increasing needs of our expanding business. Costs and potential problems and interruptions associated with the implementation of new or upgraded systems and technology or with maintenance or adequate support of existing systems could disrupt or reduce the efficiency of our operations.
Our systems and those of our third-party service providers and business partners may be vulnerable to security incidents, attacks by hackers, acts of vandalism, computer viruses, misplaced or lost data, human errors or other similar events. If unauthorized parties gain access to our networks or databases, or those of our third-party service providers or business partners, they may be able to steal, publish, delete, use inappropriately, or modify our private and sensitive third-party information including personal health information, credit card information, and personal identification information. In addition, employees may intentionally or inadvertently cause data or security incidents that result in unauthorized release of personal or confidential information. Because the techniques used to circumvent security systems can be highly sophisticated, change frequently, are often not recognized until launched against a target, and may originate from less regulated and remote areas around the world, we may be unable to proactively address all possible techniques or implement adequate preventive measures for all situations.
Security incidents compromising the confidentiality, integrity, and availability of this information and our systems could result from cyber-attacks, computer malware, viruses, social engineering (including spear phishing and ransomware attacks), credential stuffing, supply chain attacks, efforts by individuals or groups of hackers and sophisticated organizations, including state-sponsored organizations, errors or malfeasance of our personnel, and security vulnerabilities in the software or systems on which we rely. We anticipate that these threats will continue to grow in scope and complexity over time and such incidents have occurred in the past, and may occur in the future, resulting in unauthorized, unlawful, or inappropriate access to, inability to access, disclosure of, or loss of the sensitive, proprietary and confidential information that we handle.
We also rely on a number of third-party service providers to operate our critical business systems, provide us with software, and process confidential and personal information, such as the payment processors that process customer credit card payments, which expose us to security risks outside of our direct control and our ability to monitor these third-party service providers’ data security is limited. These service providers could experience a security incident that compromises the confidentiality, integrity, or availability of the systems they operate for us or the information they process on our behalf. Cybercrime and hacking techniques are constantly evolving, and we or our third-party service providers may be unable to anticipate attempted security breaches, react in a timely manner, or implement adequate preventative measures, particularly given the increasing use of hacking techniques designed to circumvent controls, avoid detection, and remove or obfuscate forensic artifacts. While we have taken measures designed to protect the security of the confidential and personal information under our control, we cannot assure you that any security measures that we or our third-party service providers have implemented will be effective against current or future security threats. Moreover, we or our third-party service providers may be more vulnerable to such attacks in remote work environments, which have increased in response to the COVID-19 pandemic.
A security breach may also cause us to breach our contractual obligations. Our agreements with certain customers, business partners, or other stakeholders may require us to use industry-standard or reasonable measures to safeguard personal information. We also may be subject to laws that require us to use industry-standard or reasonable security measures to safeguard personal information. A security incident could lead to claims by our customers, business partners, or other relevant stakeholders that we have failed to comply with such legal or contractual obligations. In addition, our inability to comply with data privacy obligations in our contracts or our inability to flow down such obligations to our vendors, collaborators, other contractors, or consultants may cause us to breach our contracts. As a result, we could be subject to legal action, or our customers or business partners could end their relationships with us. There can be no assurance that the limitations of liability in our contracts would be enforceable or adequate or would otherwise protect us from liabilities or damages.
In addition, any such access, disclosure or other loss or unauthorized use of information or data, whether actual or perceived, could result in legal claims or proceedings, regulatory investigations or actions, and other types of liability under laws that protect the privacy and security of personal information, including federal, state and foreign data protection and privacy regulations, violations of which could result in significant penalties and fines in the EU and United States. In addition, although we seek to detect and investigate all data security incidents, security breaches, and other incidents of unauthorized access to our information technology systems and data can be difficult to detect and any delay in identifying such breaches or incidents may lead to increased harm and legal exposure of the type described above.
The cost of investigating, mitigating, and responding to potential security breaches and complying with applicable breach notification obligations to individuals, regulators, partners, and others can be significant. Further, defending a suit, regardless of its merit, could be costly, divert management attention, and harm our reputation. The successful assertion of one or more large claims against us that exceed available insurance coverage, or the occurrence of changes in our insurance policies, including premium increases or the imposition of large deductible or co-insurance requirements, could adversely affect our reputation, business, financial condition, revenues, results of operations, or cash flows. Any material disruption or slowdown of our systems or those of our third-party service providers and business partners, could have a material adverse effect on our business, financial condition, and results of operations. Our risks are likely to increase as we continue to expand, grow our customer base, and process, store, and transmit increasing amounts of proprietary and sensitive data.
Our e-commerce and multichannel channel business faces distinct risks, and our failure to successfully manage it could have a negative impact on our profitability.
As an e-commerce and multichannel retailer, we encounter risks and difficulties frequently experienced by businesses with significant online and in-store sales. The successful operation of our business as well as our ability to provide a positive shopping experience that will generate orders and drive subsequent visits depends on efficient and uninterrupted operation of our e-commerce order-taking and fulfillment operations. If we are unable to allow real-time and accurate visibility to product availability when customers are ready to purchase, quickly and efficiently fulfill our customers’ orders using the fulfillment and payment methods they demand, provide a convenient and consistent experience for our customers regardless of the ultimate sales channel, or effectively manage our online sales, our ability to compete and our results of operations could be adversely affected. Risks associated with our e-commerce and multichannel business include:
| ● | uncertainties associated with our websites, mobile applications and in-store virtual try-on kiosks including changes in required technology interfaces, website downtime and other technical failures, costs and technical issues as we upgrade our systems software, inadequate system capacity, computer viruses, human error, security breaches, legal claims related to our systems operations, and fulfillment; |
| ● | our partnership with select third-party apps, through which we sell a portion of our products, are subject to changes in their technology interfaces, website downtime and other technical failures, costs, and issues; |
| ● | disruptions in internet service or power outages; |
| ● | reliance on third parties for computer hardware and software, as well as delivery of merchandise to our customers; |
| ● | rapid technology changes; |
| ● | credit or debit card fraud and other payment processing related issues; |
| ● | cybersecurity and consumer privacy; and |
| ● | natural disasters or adverse weather conditions. |
In addition, we must keep up to date with competitive technology trends, including the use of new or improved technology, creative user interfaces, virtual and augmented reality, and other e-commerce marketing tools such as paid search and mobile application, among others, which may increase our costs and which may not increase sales or attract customers. Our competitors, most of whom have significantly greater resources than we do, may also be able to benefit from changes in e-commerce technologies, which could harm our competitive position.
If we fail to adapt and respond effectively to rapidly changing technology, evolving industry standards and changing customer needs or requirements, our solutions may become less competitive.
Our success depends on our customers’ willingness to adopt and use our products, as well as our ability to adapt and enhance our products. To attract new customers and increase revenue from existing customers, we need to continue to enhance and improve our products and to meet customer needs at prices that customers are willing to pay. Such efforts will require adding new features, expanding related applications and responding to technological advancements, which will increase our research and development costs. If we are unable to develop solutions that address customers’ needs or enhance and improve our platform in a timely manner, we may not be able to increase or maintain market acceptance of our products. Further, we may make changes to our products that customers do not find useful. We may also face unexpected problems or challenges in connection with new applications or feature introductions.
Moreover, many competitors expend a considerably greater amount of funds on their research and development programs, and those that do not may be acquired by larger companies that would allocate greater resources to competitors’ research and development programs. If we fail to compete effectively with the research and development programs of competitors, our business could be harmed. Our ability to grow is also subject to the risk of future disruptive technologies. If new technologies emerge that are able to deliver smart eyewear products at lower prices, more efficiently, more conveniently or more securely, such technologies could adversely affect our ability to compete.
We depend on highly skilled personnel to grow and operate our business, and if we are unable to hire, retain, and motivate our personnel, we may not be able to grow effectively.
Our success and future growth depend largely upon the continued services of our management team, including our Chief Executive Officer Harrison Gross. From time to time, there may be changes in our executive management team resulting from the hiring or departure of our executives. Our executive officers are employed on an at-will basis, which means they may terminate their employment with us at any time. The loss of one or more of our executive officers, or the failure by our executive team to effectively work with our employees and lead our company, could harm our business. We do not maintain key person life insurance with respect to any member of management or other employee.
In addition, our future success will depend, in part, upon our continued ability to identify and hire skilled employees with the skills and technical knowledge that we require, including software design and programming, eyewear design, marketing, merchandising, operations, and other key management skills and knowledge. Such efforts will require significant time, expense, and attention as there is intense competition for such individuals.
Certain technological advances, greater availability of, or increased consumer preferences for, vision correction alternatives to prescription eyeglasses or contact lenses, and future drug development for the correction of vision-related problems may reduce the demand for our products and adversely impact our business and profitability.
Technological advances in vision care, including the development of new or improved products, as well as future drug development for the correction of vision-related problems, could significantly change how vision care may be conducted and make our existing products less attractive or even obsolete. The greater availability and acceptance, or reductions in the cost, of vision correction alternatives to prescription eyeglasses and contact lenses, such as corneal refractive surgery procedures, including radial keratotomy, photorefractive keratotomy, or PRK, and LASIK, may reduce the demand for our products, lower our sales, and thereby adversely impact our business and profitability.
We could be adversely affected by product liability, product recall or personal injury issues.
We could be adversely impacted by the supply of defective products, including the infiltration of counterfeit products into the supply chain or product mishandling issues. Product liability or personal injury claims may be asserted against us with respect to any of the products we sell or services we provide.
If the products that we sell, including those that we process, package, or label, are defective or otherwise result in product liability or personal injury claims against us, our business could be adversely affected and we could be subject to adverse regulatory action. If our products or services do not meet applicable governmental safety standards or our customers’ expectations regarding quality or safety, we could experience lost sales and increased costs, be exposed to legal and reputational risk, and face fines or penalties which could materially adversely affect our financial results.
Refunds, cancellations, and warranty claims could harm our business.
We allow our customers to return our products, subject to our refund policy, which allows any customer to return our products for any reason and receive a full refund within the first 7 days for sales made through our website, 30 days for sales made through Amazon, and 30 days for sales to most wholesale retailers and distributors (although certain sales to independent distributors are ineligible for returns). At the time of sale, we establish a reserve for returns, based on historical experience and expected future returns, which is recorded as a reduction of sales. If we experience a substantial increase in refunds, our cancellation reserve levels might not be sufficient and our business, financial condition, and results of operations could be harmed.
We expect a number of factors to cause our results of operations and operating cash flows to fluctuate on a quarterly and annual basis, which may make it difficult to predict our future performance.
Our results of operations could vary significantly from quarter to quarter and year to year because of a variety of factors, many of which are outside of our control. As a result, comparing our results of operations on a period-to-period basis may not be meaningful. In addition to other risk factors discussed in this section, factors that may contribute to the variability of our quarterly and annual results include:
| ● | our ability to accurately forecast and achieve net revenues and appropriately plan our expenses; |
| ● | changes to financial accounting standards and the interpretation of those standards, which may affect the way we recognize and report our financial results; |
| ● | the effectiveness of our internal controls; |
| ● | the early-stage nature of our business and the need to scale our operations and, |
| ● | the impact of the COVID-19 pandemic on our business. |
The impact of one or more of the foregoing and other factors may cause our results of operations to vary significantly. As such, quarter-to-quarter and year-over-year comparisons of our results of operations may not be meaningful and should not be relied upon as an indication of future performance.
We may require additional capital to support the growth of our business, and this capital might not be available on acceptable terms, if at all.
We have funded our operations since inception primarily through net proceeds from the sale of convertible loan notes, common stock sales through two registered crowdfunds and our initial public offering. We cannot be certain when, or if, our operations will generate sufficient cash to fully fund our ongoing operations or the growth of our business. We intend to continue to make investments to support the development of our products and services and will require additional funds for such development. We may need additional funding for marketing expenses and to develop and expand sales resources, develop new products and improve existing products with new features or enhance our products and services with new technology, improve our operating infrastructure, or acquire complementary businesses and technologies. Accordingly, we might need or may want to engage in future equity or debt financings to secure additional funds. Additional financing may not be available on terms favorable to us, if at all. If adequate funds are not available on acceptable terms, we may be unable to invest in future growth opportunities, which could harm our business, financial condition, and results of operations. In particular, the ongoing COVID-19 pandemic has caused disruption in the credit and financial markets in the United States and worldwide, which may reduce our ability to access capital and negatively affect our liquidity in the future. If we are unable to obtain adequate financing or financing on terms satisfactory to us, our ability to develop our products and services, support our business growth, and respond to business challenges could be significantly impaired, and our business may be adversely affected.
If we incur additional debt, the debt holders would have rights senior to holders of common stock to make claims on our assets, and the terms of any additional debt could include restrictive covenants that restrict our operations, including our ability to pay dividends on our common stock. Furthermore, if we issue additional equity securities, stockholders will experience dilution, and the new equity securities could have rights senior to those of our common stock. Because our decision to issue securities in the future will depend on numerous considerations, including factors beyond our control, we cannot predict or estimate the amount, timing, or nature of any future issuances of debt or equity securities. As a result, our stockholders bear the risk of future issuances of debt or equity securities reducing the value of our common stock and diluting their interests.
The occurrence of any of these foregoing risks could adversely affect our business, financial condition, and results of operations and expose us to unknown risks or liabilities.
Eyeglasses are regulated as medical devices by the FDA, and our failure, or the failure of any third-party manufacturer or optical laboratory, to obtain and maintain the necessary agency authorizations for our products could have a material adverse effect on our business.
We are an FDA registered eyewear importer, and we also engage in certain manufacturing, packaging, shipping and labeling activities that subject us and our overseas manufacturing partners to oversight by the FDA under the FDCA and its implementing regulations. The FDA regulates, among other things, with respect to medical devices: design, development and manufacturing, testing, labeling, content, and language of instructions for use and storage; clinical trials; product safety; establishment registration and device listing; marketing, sales and distribution; premarket clearance, classification and approval; recordkeeping procedures; advertising and promotion; recalls and field safety corrective actions; post market surveillance, including reporting of deaths or serious injuries and malfunctions that, if they were to recur, could lead to death or serious injury; post-market approval studies; and product import and export. The regulations to which we are subject are simpler than most medical products due to the relatively low risk classification of eyewearregularly, only our lenses are reviewed for FDA clearance. Regulatory changes could result in restrictions on our ability to carry on or expand our operations, higher than anticipated costs, or lower than anticipated sales. The FDA enforces its regulatory requirements through, among other means, periodic unannounced inspections. Failure to comply with applicable regulations could jeopardize our or our contract manufacturers’ ability to manufacture and sell our products and result in FDA enforcement actions such as: warning letters; fines; injunctions; civil penalties; termination of distribution; recalls or seizures of products; delays in the introduction of products into the market; total or partial suspension of production; refusal to grant future clearances or approvals; withdrawals or suspensions of clearances or approvals, resulting in prohibitions on sales of our products; and in the most serious cases, criminal penalties.
Due to the nature of Vyrb as a social media application, and our collection of customer data in the process of taking orders, we are subject to rapidly changing and increasingly stringent laws, regulations, obligations, and industry standards relating to privacy, data security, and data protection. The restrictions and costs imposed by these laws and other obligations, or our actual or perceived failure to comply with them, could subject us to liabilities that adversely affect our business, operations, and financial performance.
We collect, process, store, and use a wide variety of data from current and prospective customers, including personal information, such as home addresses and geolocation, and health information related to their ophthalmic prescriptions. These activities are regulated by a variety of federal, state, local, and foreign privacy, data security, and data protection laws and regulations, which have become increasingly stringent in recent years.
Domestic privacy and data security laws are complex and changing rapidly. Many states have enacted laws regulating the online collection, use, and disclosure of personal information and requiring that companies implement reasonable data security measures. Laws in all states and U.S. territories also require businesses to notify affected individuals, governmental entities, and/or credit reporting agencies of certain security incidents affecting personal information. These laws are not consistent, and compliance with them in the event of a widespread data breach is complex and costly.
Further, the California Consumer Privacy Act (CCPA) took effect on January 1, 2020. The CCPA gives California residents expanded rights related to their personal information, including the right to access and delete their personal information, and receive detailed information about how their personal information is used and shared. The CCPA also created restrictions on “sales” of personal information that allow California residents to opt-out of certain sharing of their personal information and may restrict the use of cookies and similar technologies for advertising purposes. Our e-commerce platform, including our websites and mobile applications, rely on these technologies and could be adversely affected by the CCPA’s restrictions. The CCPA prohibits discrimination against individuals who exercise their privacy rights, provides for civil penalties for violations, and creates a private right of action for data breaches that is expected to increase data breach litigation. Additionally, a new California ballot initiative, the California Privacy Rights Act, or CPRA, was recently passed in California. The CPRA will restrict use of certain categories of sensitive personal information that we handle; further restrict the use of cross-context behavioral advertising techniques on which our products may rely in the future; establish restrictions on the retention of personal information; expand the types of data breaches subject to the private right of action; and establish the California Privacy Protection Agency to implement and enforce the new law, as well as impose administrative fines. The majority of the CPRA’s provisions will go into effect on January 1, 2023, and additional compliance investment and potential business process changes will likely be required. Similar laws have been proposed in other states and at the federal level, reflecting a trend toward more stringent privacy legislation in the United States. Compliance with such laws could be difficult and costly to achieve and we could be subject to fines and penalties in the event of non-compliance.
Additionally, we are subject to certain health information privacy and security laws as a result of the health information that we receive in connection with our products and services. These laws and regulations include not be adequate to indemnify us for the full extent of our potential liabilities.
Finally, since the Vyrb social app allows users to create and share various types of multimedia content in a public space operated by the Company, the Company has a basic responsibility to ensure that illegal or otherwise personally harmful content is removed from the platform with speed, which if we fail to do so, could potentially result in legal action against the Company.
Our business could be adversely impacted by changes in the internet and mobile device accessibility of users. Companies and governmental agencies may restrict access to our products and services, our mobile applications, website, application stores, or the internet generally, which could negatively impact our operations.
Our business depends on customers accessing our products and services via a mobile device or a personal computer, and the internet. We may operate in jurisdictions that provide limited internet connectivity. Internet access and access to a mobile device or personal computer are frequently provided by companies with significant market power that could take actions that degrade, disrupt, or increase the cost of consumers’ ability to access our products and services. In addition, the internet infrastructure that we and our customers rely on in any particular geographic area may be unable to support the demands placed upon it and could interfere with the speed and availability of our products and services. Any such failure in internet or mobile device or computer accessibility, even for a short period of time, could adversely affect our results of operations.
Governmental agencies in any of the countries in which we or our customers are located could block access to or require a license for our mobile applications, website, or the internet generally for a number of reasons, including security, confidentiality, or regulatory concerns. In addition, companies may adopt policies that prohibit their employees from using our products and services. If companies or governmental entities block, limit, or otherwise restrict customers from accessing our products and services, our business could be negatively impacted, the number of customers could decline or grow more slowly, and our results of operations could be adversely affected.
We could incur significant liabilities related to, and significant costs in complying with, environmental, health, and safety laws and regulations.
Our operations are subject to various national, state, and local environmental, health, and safety laws and regulations that govern, among other things, the health and safety of our employees and the end-users of our products and the materials used in, and the recycling of, our products and their packaging. Non-compliance with, or liability related to, these laws and regulations, which tend to become more stringent over time, could result in substantial fines or penalties, injunctive relief, civil, or criminal sanctions, and could expose us to costs of investigation or remediation, as well as tort claims for property damage or personal injury.
In addition, a number of governmental authorities, both in the United States and abroad, have considered, and are expected to consider, legislation aimed at reducing the amount of plastic non-recyclable waste. Programs have included banning certain types of products, mandating certain rates of recycling and/or the use of recycled materials, imposing deposits or taxes on single-use plastic bags, paper bags, reusable bags, and packaging materials. Such legislation, as well as voluntary initiatives, aimed at reducing the level of plastic wastes could result in increased cost of packaging for our products or otherwise require us to alter our current packaging and bagging practices. Additional regulatory efforts addressing other environmental or safety concerns in the future could similarly impact our business, financial condition, and results of operations.
From time to time, we may be subject to legal proceedings, regulatory disputes, and governmental inquiries that could cause us to incur significant expenses, divert our management’s attention, and materially harm our business, financial condition, and operating results.
From time to time, we may be subject to claims, lawsuits, government investigations, and other proceedings involving products liability, competition and antitrust, intellectual property, privacy, false advertising, consumer protection, securities, tax, labor and employment, commercial disputes, and other matters that could adversely affect our business operations and financial condition. As we grow, we may see a rise in the number and significance of these disputes and inquiries. Litigation and regulatory proceedings may be protracted and expensive, and the results are difficult to predict. Certain of these matters include speculative claims for substantial or indeterminate amounts of damages and include claims for injunctive relief. Additionally, our litigation costs could be significant. Adverse outcomes with respect to litigation or any of these legal proceedings may result in significant settlement costs or judgments, penalties and fines, or require us to modify our products or services, all of which could negatively affect our revenue growth. The results of litigation, investigations, claims, and regulatory proceedings cannot be predicted with certainty, and determining reserves for pending litigation and other legal and regulatory matters requires significant judgment. There can be no assurance that our expectations will prove correct, and even if these matters are resolved in our favor or without significant cash settlements, these matters, and the time and resources necessary to litigate or resolve them, could harm our business, financial condition, and results of operations.
Risks Related to Intellectual Property
We license some of our technology from Lucyd Ltd., the majority stockholder of the Company, and our inability to maintain this license could materially affect our business, financial condition, and operating results.
Some of our current intellectual property is licensed from Lucyd Ltd., the majority stockholder of the Company, pursuant to a license agreement we entered into with Lucyd Ltd. on April 1, 2020 (the “License Agreement”). Pursuant to the License Agreement, we acquired an exclusive, worldwide license that is royalty-free, fully paid up, and perpetual license for the exclusive use of certain assets of Lucyd Ltd. related to Innovative Eyewear current products and trademarks. There can be no assurance that the license will not be terminated by Lucyd Ltd. and if we are unable to continue to license the technology (because of, for example, intellectual property infringement claims brought by third-parties against us or against Lucyd Ltd.) then our business, financial condition and operating results would be adversely affected. Please see “BusinessMaterial Agreements” for a more complete description of the License Agreement.
Failure to adequately maintain and protect our intellectual property and proprietary rights could harm our brand, devalue our proprietary content, and adversely affect our ability to compete effectively.
Our success depends to a significant degree on Lucyd Ltd.’s ability to obtain, maintain, protect, and enforce our licensed intellectual property rights, including those in our proprietary technologies, know-how, and brand. To protect our rights to our intellectual property, we rely on a combination of patent, trademark, copyright and trade secret laws, domain name registrations, confidentiality agreements, and other contractual arrangements with our employees, affiliates, clients, strategic partners, and others. However, the protective steps we have taken and plan to take may be inadequate to deter misappropriation or other violation of or otherwise protect our intellectual property rights. We may be unable to detect the unauthorized use of, or take appropriate steps to enforce, our intellectual property rights. Effective patent, trademark, copyright, and trade secret protection may not be available to us or available in every jurisdiction in which we offer or intend to offer our services. Failure to adequately protect our intellectual property could harm our brand, devalue our proprietary technology and content, and adversely affect our ability to compete effectively. Further, even if we are successful, defending our intellectual property rights could result in the expenditure of significant financial and managerial resources, which could adversely affect our business, financial condition, and results of operations.
If we fail to protect our intellectual property rights adequately, our competitors may gain access to our licensed intellectual property and proprietary technology and develop and commercialize substantially identical offerings or technologies. Any patents, trademarks, copyrights, or other intellectual property rights that we have or may obtain may be challenged or circumvented by others or invalidated or held unenforceable through administrative process, including re-examination, inter partes review, interference and derivation proceedings, and equivalent proceedings in foreign jurisdictions (e.g., opposition proceedings), or litigation. There can be no assurance that our patent applications will result in issued patents and we may be unable to obtain or maintain patent protection for our technology. In addition, any patents issued from pending or future patent applications or licensed to us in the future may not provide us with claims sufficiently broad to provide meaningful competitive advantages or may be successfully challenged by third parties. There is also no guarantee that our pending trademark applications for any mark will proceed to registration; our pending applications may be opposed by a third party prior to registration; and even those trademarks that are registered could be challenged by a third party, including by way of revocation or invalidity actions. For example, we have registrations in a number of foreign countries in which we are not currently offering goods or services, and those registrations could be subject to invalidation proceedings if we cannot demonstrate use of the marks by the applicable use deadlines in those countries. In addition, because patent applications in the United States are currently maintained in secrecy for a period of time prior to issuance, and patent applications in certain other countries generally are not published until more than 18 months after they are first filed, and because publication of discoveries in scientific or patent literature often lags behind actual discoveries, we cannot be certain that we were the first creator of inventions covered by our pending patent applications or that we were the first to file patent applications on such inventions. To maintain a proprietary market position in foreign countries, we may seek to protect some of our proprietary inventions through foreign counterpart patent applications. Statutory differences in patentable subject matter may limit the protection we can obtain on some of our inventions outside of the United States. The diversity of patent laws may make our expenses associated with the development and maintenance of intellectual property in foreign jurisdictions more expensive than we anticipate. We probably will not be able to obtain the same patent protection in every market in which we may otherwise be able to potentially generate revenue. Further, the laws of some foreign countries may not be as protective of intellectual property rights as those in the United States, and mechanisms for enforcement of intellectual property rights may be inadequate. Moreover, policing unauthorized use of our technologies, trade secrets, and intellectual property may be difficult, expensive, and time-consuming. Despite our precautions, it may be possible for unauthorized third parties to copy our offerings and capabilities and use information that we regard as proprietary to create offerings that compete with ours. Third parties may apply to register our trademarks or other trademarks similar to our trademarks in jurisdictions before us, thereby creating risks relating to our ability to use and register our trademarks in those jurisdictions. In addition, there could be potential trade name or trademark ownership or infringement claims brought by owners of other rights, including registered trademarks, in our marks or marks similar to ours. Any claims of infringement, brand dilution, or consumer confusion related to our brand (including our trademarks) or any failure to renew key license agreements on acceptable terms could damage our reputation and brand identity and substantially harm our business and results of operations. The value of our intellectual property could diminish if others assert rights in or ownership of our trademarks and other intellectual property rights, or trademarks that are similar to our trademarks. We may be unable to successfully resolve these types of conflicts to our satisfaction. In some cases, litigation or other actions may be necessary to protect or enforce our trademarks and other intellectual property rights.
We generally enter into confidentiality and invention assignment agreements with our employees and consultants, as well as confidentiality agreements with other third parties, including suppliers and other partners. However, we cannot guarantee that we have entered into such agreements with each party that has or may have had access to our proprietary information, know-how, and trade secrets. Moreover, no assurance can be given that these agreements will be effective in controlling access to our proprietary information or the distribution, use, misuse, misappropriation, reverse engineering, or disclosure of our proprietary information, know-how, and trade secrets. Further, these agreements may not prevent our competitors from independently developing technologies that are substantially equivalent or superior to our offerings and capabilities. These agreements may be breached, and we may not have adequate remedies for any such breach.
We may be required to spend significant resources to monitor and protect our intellectual property rights. Litigation may be necessary in the future to enforce our intellectual property rights and to protect our trade secrets. Litigation brought to protect and enforce our intellectual property rights could be costly, time-consuming, and distracting to management, and could result in the impairment or loss of portions of our intellectual property rights. Further, our efforts to enforce our intellectual property rights may be met with defenses, counterclaims, and countersuits attacking the validity and enforceability of our intellectual property rights, and if such defenses, counterclaims, or countersuits are successful, we could lose valuable intellectual property rights. Further, any changes in law or interpretation of any such laws, particularly intellectual property laws, may impact our ability to protect, register, or enforce our intellectual property rights. Our inability to protect our proprietary technology against unauthorized copying or use, as well as any costly litigation or diversion of our management’s attention and resources, could delay further sales or the implementation of our offerings and capabilities, impair the functionality of our offerings and capabilities, delay introductions of new offerings, result in our substituting inferior or more costly technologies into our offerings, or injure our reputation.
Domain names generally are regulated by internet regulatory bodies, and the regulation of domain names is subject to change. Regulatory bodies have and may continue to establish additional top-level domains, appoint additional domain name registrars, or modify the requirements for holding domain names. We may not be able to, or it may not be cost-effective to, acquire or maintain all domain names that utilize the name “Lucyd Ltd.” or “Innovative Eyewear” in all of the countries in which we currently conduct or intend to conduct business. If we lose the ability to use a domain name, we could incur significant additional expenses to market our products within that country, including the development of new branding. This could substantially harm our business, results of operations, financial condition and prospects.
We may incur costs to defend against, face liability or for being vulnerable to intellectual property infringement claims brought against us by others.
Third parties may assert claims against us alleging that we infringe upon, misappropriate, dilute or otherwise violate their intellectual property rights, particularly as we expand our business and the number of products we offer. These risks have been amplified by the increase in third parties whose sole or primary business is to assert such claims. We may be particularly vulnerable to such claims, as companies having a substantial online presence are frequently subject to litigation based on allegations of infringement or other violations of intellectual property rights. As we gain an increasingly high public profile, the possibility of intellectual property rights claims against us grows. Our competitors and others may now and in the future have significantly larger and more mature patent portfolios than us.
We rely on contracts and releases for ownership of copyrighted materials and the right to use images of individuals on our webpage and marketing material, and we may be subject to claims that we did not properly obtain rights, consent, a release, or permission to use certain content or imagery. Many potential litigants have the ability to dedicate substantial resources to the assertion of their intellectual property rights. Any claim of infringement by a third party, even those without merit, could cause us to incur substantial costs defending against the claim, could distract our management from our business, could require us to cease use of such intellectual property, and could create ongoing obligations if we are subject to agreements or injunctions (stipulated or imposed) preventing us from engaging in certain acts. Furthermore, because of the substantial amount of discovery required in connection with intellectual property litigation, we risk compromising our confidential information during this type of litigation. Our defense of any claim, regardless of its merit, could be expensive and time consuming and could divert management resources. We cannot predict the outcome of lawsuits and cannot ensure that the results of any such actions will not have an adverse effect on our business, financial condition, or results of operations. Successful infringement claims against us could result in significant monetary liability or prevent us from selling some of our products. In addition, resolution of claims may require us to redesign or rebrand our products, license rights from third parties on potentially unfavorable terms, cease using certain brand names or other intellectual property rights altogether, make substantial payments for royalty or license fees, legal fees, settlement payments or other costs or damages, or admit liability. Such outcomes could encourage others to bring claims against us. To the extent we seek a license to continue offerings or operations found or alleged to infringe third-party intellectual property rights, such a license may be non-exclusive, and therefore our competitors may have access to the same technology licensed to us. In the event we are required to develop alternative, non-infringing technology, this could require significant time (during which we would be unable to continue to offer our affected offerings), effort and expense, and may ultimately not be successful. Any of these events could harm our business and cause our results of operations, liquidity, and financial condition to suffer.
Risks Related to Our Dependence on Third Parties
We face risks associated with suppliers from whom our products are sourced and are dependent on a limited number of suppliers.
We purchase all of the inputs for our products, including eyeglass frames, temples with electronics embedded within them, prescription lenses, sun lenses, demo lenses, hinges, packaging materials and other components, parts, and raw materials, directly or indirectly from domestic and international suppliers. For our business to be successful, our suppliers must be willing and able to provide us with inputs in substantial quantities, in compliance with regulatory requirements, at acceptable costs and on a timely basis. Our ability to obtain a sufficient selection or volume of inputs on a timely basis at competitive prices could suffer as a result of any deterioration or change in our supplier relationships or events that adversely affect our suppliers.
We typically do not enter into long-term contracts with our suppliers and, as such, we operate without significant contractual assurances of continued supply, pricing or access to inputs. Any of our suppliers could discontinue supplying us with desired inputs in sufficient quantities or offer us less favorable terms on future transactions for a variety of reasons. The benefits we currently experience from our suppliers’ relationships could be adversely affected if our suppliers:
| ● | discontinue selling products to us; |
| ● | increase lead times for products and/or key components |
We also source inputs directly from suppliers outside of the United States, including China. Global sourcing and foreign trade involve numerous factors and uncertainties beyond our control including increased shipping costs, the imposition of additional import or trade restrictions, including legal or economic restrictions on overseas suppliers’ ability to produce and deliver inputs, increased custom duties and tariffs, unforeseen delays in customs clearance of goods, more restrictive quotas, loss of a most favored nation trading status, currency exchange rates, transportation delays, port of entry issues and foreign government regulations, political instability, and economic uncertainties in the countries from which we or our suppliers source our products.
Additionally, sourcing could be impacted by current and future travel restrictions and/or the shut-down of certain businesses globally due to the COVID-19 pandemic.
We rely on a limited number of contract manufacturers and logistics partners for our products. A loss of any of these partners could negatively affect our business.
We rely on a limited number of third-party suppliers and contract manufacturers for the components that go into the manufacturing of our products. In particular, our frames are provided by only a handful of suppliers. We also assemble and fulfill prescription glasses at a single third-party optical laboratory. Our reliance on a limited number of contract manufacturers and logistics partners for our products increases our risks of being unable to deliver our products in a timely and cost-effective manner. In the event of interruption from any of our contract manufacturers or our own fulfillment capabilities, we should be able to increase capacity from other sources or develop alternate or secondary sources without incurring material additional costs or substantial delays.
Our business could be adversely affected if one or more of our manufacturers is impacted by a natural disaster, an epidemic such as COVID-19, or other interruption at a particular location. In particular, the ongoing COVID-19 pandemic has caused, and will likely continue to cause, interruptions in the development, manufacturing (including the sourcing of key components), and shipment of our products, which could adversely impact our revenue, gross margins, and operating results.
Additionally, we do not own or operate a warehouse or a warehouse management company or system, and we currently rely on three third-party warehouses. Because a significant percentage of our products are stored in and shipped out of third-party warehouses, we face significant risks such as, but not limited to: our operations could be disrupted and our inventory could be destroyed by earthquakes, floods, fires or other natural disasters or other events outside of our control, or the control of our third-party warehouse. Our dependence on third-party warehouses also exposes us to the risk that the warehouse may experience operational disruptions due to security or computer viruses, software and hardware failure, power interruptions and other system failures. If we encounter problems with our third-party warehouse, we may be unable to meet customer expectations, manage our inventory and fulfillment capacity, complete sales, fulfill orders in a timely fashion, and our ability to achieve objectives for operating efficiencies could be adversely affected, all of which could harm our reputation and our relationship with our customers.
Our projects could be hindered due to our dependence on third parties to complete many of our contracts.
In the current economic environment, third parties may find it difficult to obtain sufficient financing to help fund their operations. The inability to obtain financing could adversely affect a third party’s ability to provide materials, equipment or services which could have a material adverse impact on our business, financial condition, and results of operations. In addition, a failure by a third-party subcontractor, supplier or manufacturer to comply with applicable laws, regulations or client requirements could negatively impact our business and, for government clients, could result in fines, penalties, suspension or even debarment being imposed on us, which could have a material adverse impact on our business, financial condition, and results of operations.
We depend on search engines, social media platforms, digital application stores, content-based online advertising, and other online sources to attract consumers to and promote our website and our mobile applications, which may be affected by third-party interference beyond our control and as we grow our customer acquisition costs may rise.
Our success depends in part on our ability to attract consumers to our website, mobile applications, and retail partners to convert them into customers in a cost-effective manner. We depend, in large part, on search engines, social media platforms, digital application stores, content-based online advertising, and other online sources for traffic to our website, mobile applications, and select application partners.
With respect to search engines, we are included in search results as a result of both paid search listings, where we purchase specific search terms that result in the inclusion of our advertisement, and free search listings, which depend on algorithms used by search engines. For paid search listings, if one or more of the search engines or other online sources on which we rely for purchased listings modifies or terminates its relationship with us, our expenses could rise, we could lose consumers and traffic to our website could decrease, any of which could have a material adverse effect on our business, financial condition, and results of operations.
We plan to rely primarily on third-party insurance policies to insure our operations-related risks. If our insurance coverage is insufficient for the needs of our business or our insurance providers are unable to meet their obligations, we may not be able to mitigate the risks facing our business, which could adversely affect our business, financial condition, and results of operations.
We procure third-party insurance policies or plan to procure policies to cover various operations-related risks including employment practices liability, workers’ compensation, property and business interruptions, cybersecurity and data breaches, crime, directors’ and officers’ liability, and general business liabilities. We rely on a limited number of insurance providers, and should such providers discontinue or increase the cost of coverage, we cannot guarantee that we would be able to secure replacement coverage on reasonable terms or at all. If our insurance carriers change the terms of our policies in a manner not favorable to us, our insurance costs could increase. Further, if the insurance coverage we maintain is not adequate to cover losses that occur, or if we are required to purchase additional insurance for other aspects of our business, we could be liable for significant additional costs. Additionally, if any of our insurance providers becomes insolvent, it would be unable to pay any operations-related claims that we make.
General Risk Factors
Failure to establish and maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act could have a material adverse effect on our business and stock price.
Since the completion of our initial public offering in August 2022, we have been required to comply with the SEC’s rules implementing Sections 302 and 404 of the Sarbanes-Oxley Act, which will require management to certify financial and other information in our quarterly and annual reports and provide an annual management report on the effectiveness of controls over financial reporting. Though we will be required to disclose changes made in our internal controls and procedures on a quarterly basis, we are not required to make our first annual assessment of our internal control over financial reporting pursuant to Section 404 until the year following our first annual report required to be filed with the SEC. As an “emerging growth company,” as defined in the JOBS Act, we may take advantage of certain temporary exemptions from various reporting requirements, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes Oxley Act (and the rules and regulations of the Securities and Exchange Commission thereunder). Once we no longer qualify as an “emerging growth company” under the JOBS Act and lose the ability to rely on the exemptions related thereto discussed above and depending on our status as per Rule 12b-2 of the Securities Exchange Act of 1934, as amended, our independent registered public accounting firm may also need to attest to the effectiveness of our internal control over financial reporting under Section 404.
Based on the number of personnel available to serve the Company’s accounting function, management believes we are not able to adequately segregate responsibility over financial transaction processing and reporting. Further, the Company does not have a formal internal control environment in place and operating effectively. As such, we have identified these issues as material weaknesses in our internal control over financial reporting and insufficient controls with respect to revenue recognition, and we may identify additional material weaknesses in the future that may cause us to fail to meet our reporting obligations or result in material misstatements of our financial statements. If our remediation of such material weaknesses is not effective, or if we fail to develop and maintain an effective system of internal controls and internal control over financial reporting, our ability to produce timely and accurate financial statements or comply with applicable laws and regulations could be materially and adversely affected and the market price of our common stock could be negatively affected, which could require additional financial and management resources.
Changes in tax treatment of companies engaged in e-commerce may adversely affect the commercial use of our sites and our financial results.
Due to the global nature of the Internet, it is possible that various states or foreign countries might attempt to impose additional or new regulation on our business or levy additional or new sales, income, or other taxes relating to our activities. Tax authorities at the international, federal, state, and local levels are currently reviewing the appropriate treatment of companies engaged in e-commerce and digital services. New or revised international, federal, state, or local tax regulations or court decisions may subject us or our customers to additional sales, income and other taxes. For example, on June 21, 2018, the U.S. Supreme Court rendered a 5-4 majority decision in South Dakota v. Wayfair Inc., 17-494 where the Court held, among other things, that a state may require an out-of-state seller with no physical presence in the state to collect and remit sales taxes on goods the seller ships to consumers in the state, overturning existing court precedent. Other new or revised taxes and, in particular, digital taxes, sales taxes, VAT, and similar taxes could increase the cost of doing business online and decrease the attractiveness of selling products over the Internet. New taxes and rulings could also create significant increases in internal costs necessary to capture data and collect and remit taxes. Any of these events could have a material adverse effect on our business, financial condition, and operating results.
An overall decline in the health of the economy and other factors impacting consumer spending, such as recessionary conditions, governmental instability, inclement weather, and natural disasters, may affect consumer purchases, which could reduce demand for our products and harm our business, financial conditions, and results of operations.
Our business depends on consumer demand for our products and, consequently, is sensitive to a number of factors that influence consumer confidence and spending, such as general economic conditions, consumer disposable income, energy and fuel prices, recession and fears of recession, unemployment, minimum wages, availability of consumer credit, consumer debt levels, conditions in the housing market, interest rates, tax rates and policies, inflation, consumer confidence in future economic conditions and political conditions, war and fears of war, inclement weather, natural disasters, terrorism, outbreak of viruses or widespread illness, and consumer perceptions of personal well-being and security. However, as eyewear is a necessary medical device for a large segment of the population, we believe our business is more insulated from economic forces compared to other consumer electronics.
We are an “emerging growth company,” and we cannot be certain if the reduced reporting and disclosure requirements applicable to emerging growth companies will make our common stock less attractive to investors.
We are an “emerging growth company,” as defined in the JOBS Act, and we may take advantage of certain exemptions from reporting requirements that are applicable to other public companies that are not “emerging growth companies,” including the auditor attestation requirements of Section 404, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a non-binding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. Pursuant to Section 107 of the JOBS Act, as an emerging growth company, we have elected to use the extended transition period for complying with new or revised accounting standards until those standards would otherwise apply to private companies. As a result, our financial statements may not be comparable to the financial statements of issuers who are required to comply with the effective dates for new or revised accounting standards that are applicable to public companies, which may make our common stock less attractive to investors. In addition, if we cease to be an emerging growth company, we will no longer be able to use the extended transition period for complying with new or revised accounting standards.
We will remain an emerging growth company until the earliest of: (1) the last day of the fiscal year following the fifth anniversary of our listing; (2) the last day of the first fiscal year in which our annual gross revenue is $1.235 billion or more; (3) the date on which we have, during the previous rolling three-year period, issued more than $1 billion in non-convertible debt securities; and (4) the date on which we are deemed to be a “large accelerated filer” under the rules of the SEC.
We cannot predict if investors will find our common stock less attractive if we choose to rely on these exemptions. For example, if we do not adopt a new or revised accounting standard, our future results of operations may not be comparable to the results of operations of certain other companies in our industry that adopted such standards. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock, and our stock price may be more volatile.
If our estimates or judgments relating to our critical accounting policies prove to be incorrect, our results of operations could be adversely affected.
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in our financial statements and accompanying notes appearing elsewhere in this prospectus. We base our estimates on short duration historical experience and on various other assumptions that we believe to be reasonable under the circumstances, as provided in the section titled “Management’s Discussion and Analysis of Financial Condition and Results of OperationsCritical Accounting Policies and Estimates.” The results of these estimates form the basis for making judgments about the carrying values of assets, liabilities, and equity, and the amount of revenue and expenses. Significant estimates and judgments involve: inventory valuation; intangible assets; income taxes; valuation of our common stock and equity awards; revenue recognition, including revenue-related reserves; shipping and handling; and the computation of earnings/loss per share. Our results of operations may be adversely affected if our assumptions change or if actual circumstances differ from those in our assumptions, which could cause our results of operations to fall below the expectations of securities analysts and investors, resulting in a decline in the market price of our common stock.
Our current insurance coverage may not be adequate, and we may not be able to obtain insurance at acceptable rates, or at all.
We currently have General Liability and Product Liability policies covering our business. These policies may not provide sufficient coverage in the face of significant claims or multiple claims. Claims exceeding our insurance coverage could create significant increases in internal costs. This even could have a material adverse effect on our business, financial condition, and operating results.
We may decide to pursue strategic licensing deals to accelerate our growth. These potential brand acquisitions may not be successful. We may not be able to successfully integrate future IP acquisitions or generate sufficient revenues from future acquisitions, which could cause our business to suffer.
If we license an intellectual property (IP) from a company, there can be no assurance that we will be able to profitably manage this intellectual property or successfully integrate a new business unit without substantial costs, delays or other operational or financial problems. There can be no assurance that the IP we acquire in the future will achieve anticipated revenues and earnings. Additionally:
| ● | the key personnel operating the acquired IP may decide not to work with us; |
| ● | we may be unable to maintain uniform standards, controls, procedures and policies among acquired IPs; |
| ● | we may be unable to successfully implement infrastructure, logistics and systems integration; |
| ● | we may be held liable for legal claims (including environmental claims) arising out of activities of the acquired IP prior to our acquisitions, some of which we may not have discovered during our due diligence, and we may not have indemnification claims available to us or we may not be able to realize on any indemnification claims with respect to those legal claims; |
| ● | we will assume risks associated with deficiencies in the internal controls of acquired IPs; |
| ● | we may not be able to realize the cost savings or other financial benefits we anticipated; and |
| ● | our ongoing business may be disrupted or receive insufficient management attention. |
Future acquisitions may require us to obtain additional equity or debt financing, which may not be available on attractive terms. Moreover, to the extent an acquisition transaction financed by non-equity consideration results in additional goodwill, it will reduce our tangible net worth, which might have an adverse effect on our credit and bonding capacity.
Risks Related to Our Common Stock
Our directors, executive officers and principal stockholders have substantial control over our company, which could limit your ability to influence the outcome of key transactions, including a change of control.
Our executive officers, directors and principal stockholders and their affiliates own 5,189,085 shares of our common stock, or approximately 62% of the outstanding shares of our common stock, based on the number of shares outstanding as of May 17, 2023. As a result, these stockholders are able to exercise a significant level of control over all matters requiring stockholder approval, including the election of directors and the approval of mergers, acquisitions or other extraordinary transactions. They may also have interests that differ from yours and may vote in a way with which you disagree and which may be adverse to your interests. This concentration of ownership may have the effect of delaying, preventing or deterring a change of control of our company, could deprive our stockholders of an opportunity to receive a premium for their common stock as part of a sale of our company and might ultimately affect the market price of our common stock.
Lucyd Ltd., our principal stockholder, beneficially owns greater than 50% of our outstanding shares of common stock, which causes us to be deemed a “controlled company” under the rules of NASDAQ.
Lucyd Ltd. currently controls approximately 62% of the voting power of our capital stock. As a result, Lucyd Ltd. owns more than 50% of our outstanding shares and as such, we are a “controlled company” under the rules of NASDAQ. Under these rules, a company of which more than 50% of the voting power is held by an individual, a group or another company is a “controlled company” and, as such, can elect to be exempt from certain corporate governance requirements, including requirements that:
| ● | a majority of the Board of Directors consist of independent directors; |
| ● | the board maintain a nominations committee with prescribed duties and a written charter; and |
| ● | the board maintain a compensation committee with prescribed duties and a written charter and comprised solely of independent directors. |
As a “controlled company,” we may elect to rely on some or all of these exemptions, however, we do not intend take advantage of any of these exemptions. Despite the fact we do not intend to take advantage of these exemptions, our status as a “controlled company” could make our common stock less attractive to some investors or otherwise harm our stock price.
Separately, although our audit committee is currently in compliance and we intend to maintain compliance with NASDAQ rules, we are permitted to phase-in our compliance with the independent audit committee requirements set forth in NASDAQ rules, as follows: (1) one independent member of the audit committee at the time of listing, (2) a majority of independent members of the audit committee within 90 days of listing, and (3) all independent members of the audit committee (i.e., at least three members) within one year of listing. During these phase-in periods, our stockholders would not have the same protections afforded to stockholders of companies who have more ‘independent’ members of its audit committee and, if, within the phase-in periods, we are not able to recruit additional directors who would qualify as independent, or otherwise comply with the NASDAQ listing requirements, we may be subject to enforcement actions by NASDAQ.
We do not intend to pay dividends for the foreseeable future.
We have never declared or paid any cash dividends on our capital stock, and we do not intend to pay any cash dividends in the foreseeable future. We expect to retain future earnings, if any, to fund the development and growth of our business. Any future determination to pay dividends on our capital stock will be at the discretion of our board of directors. Accordingly, you must rely on the sale of your common stock after price appreciation, which may never occur, as the only way to realize any future gain on your investment.
Our quarterly operating results may fluctuate significantly and could fall below the expectations of securities analysts and investors due to the introduction of technologically more advanced products, seasonality and other factors, some of which are beyond our control, resulting in a decline in our stock price.
Our quarterly operating results may fluctuate significantly because of several factors, including:
| ● | labor availability and costs for hourly and management personnel; |
| ● | changes in interest rates; |
| ● | macroeconomic conditions, both nationally and locally; |
| ● | changes in consumer preferences and competitive conditions; |
| ● | expansion to new markets; |
| ● | weather conditions in the regions we operate; |
| ● | increases in infrastructure costs; and |
| ● | fluctuations in commodity prices. |
Unanticipated fluctuations in our quarterly operating results could result in a decline in our stock price.
Our failure to meet the continued listing requirements of NASDAQ could result in a de-listing of our common stock and Listed Warrants.
If we fail to satisfy the continued listing requirements of NASDAQ, such as the corporate governance requirements or the minimum closing bid price requirement, NASDAQ may take steps to de-list our common stock and Listed Warrants. Such a de-listing would likely have a negative effect on the price of our common stock and Listed Warrants and would impair your ability to sell or purchase our common stock and Listed Warrants when you wish to do so. In the event of a de-listing, we would take actions to restore our compliance with NASDAQ’s listing requirements, but we can provide no assurance that any such action taken by us would allow our common stock and Listed Warrants to become listed again, stabilize the market price or improve the liquidity of our common stock and Listed Warrants, prevent our common stock and Listed Warrants from dropping below the NASDAQ minimum bid price requirement or prevent future non-compliance with NASDAQ’s listing requirements.
If our shares are delisted from NASDAQ and become subject to the penny stock rules, it would become more difficult to trade our shares.
The SEC has adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks. Penny stocks are generally equity securities with a price of less than $5.00, other than securities registered on certain national securities exchanges or authorized for quotation on certain automated quotation systems, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system. If we do not obtain or retain a listing on NASDAQ and if the price of our common stock is less than $5.00, our common stock will be deemed a penny stock. The penny stock rules require a broker-dealer, before a transaction in a penny stock not otherwise exempt from those rules, to deliver a standardized risk disclosure document containing specified information. In addition, the penny stock rules require that before effecting any transaction in a penny stock not otherwise exempt from those rules, a broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive (i) the purchaser’s written acknowledgment of the receipt of a risk disclosure statement; (ii) a written agreement to transactions involving penny stocks; and (iii) a signed and dated copy of a written suitability statement. These disclosure requirements may have the effect of reducing the trading activity in the secondary market for our common stock, and therefore stockholders may have difficulty selling their shares.
Use of Proceeds
We will not receive any proceeds from the sale of the common stock by the selling stockholders. We may receive proceeds upon the exercise of the April Warrants (to the extent the registration statement of which this prospectus is a part is then effective and, if applicable, the “cashless exercise” provision is not utilized by the holder). Any proceeds will be used for general corporate and working capital or for other purposes that the Board of Directors, in their good faith, deems to be in the best interest of the Company. No assurances can be given that any of such April Warrants will be exercised.
DETERMINATION OF OFFERING PRICE
The selling stockholders will offer common stock at the prevailing market prices or privately negotiated price.
The offering price of our common stock by the selling stockholders does not necessarily bear any relationship to our book value, assets, past operating results, financial condition or any other established criteria of value. The facts considered in determining the offering price were our financial condition and prospects, our limited operating history and the general condition of the securities market.
In addition, there is no assurance that our common stock will trade at market prices in excess of the offering price as prices for common stock in any public market will be determined in the marketplace and may be influenced by many factors, including the depth and liquidity.
MARKET INFORMATION FOR SECURITIES AND DIVIDEND POLICY
Our common stock and our Listed Warrants are currently listed on Nasdaq under the symbols “LUCY” and “LUCYW,” respectively. The last reported sale price of our common stock Nasdaq on May 17, 2023 was $2.19 per share of common stock
Holders of Record
As of May 17, 2023, we had approximately 3,961 holders of record of our common stock. Because many of our shares of common stock are held by brokers and other institutions on behalf of stockholders, this number is not indicative of the total number of stockholders represented by these stockholders of record.
Dividends
We have not declared or paid dividends to stockholders since inception and do not plan to pay cash dividends in the foreseeable future. We currently intend to retain earnings, if any, to finance our growth.
Issuer Purchases of Equity Securities
None
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
You should read the following discussion and analysis of our financial condition and results of operations together with the accompanying “Index to Consolidated Financial Statements” included within this Registration Statement on Form S-1. Data as of and for the periods ended December 31, 2022 and 2021 has been derived from our audited financial statements appearing at the end of this prospectus. Data as of and for the three months ended March 31, 2023 and 2022 has been derived from our unaudited condensed financial statements appearing at the end of this prospectus. Results for any interim period should not be construed as an inference of what our results would be for any full fiscal year or future period. This discussion and other parts of this prospectus contain forward-looking statements, such as those relating to our plans, objectives, expectations, intentions, and beliefs, which involve risks and uncertainties. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those discussed in the sections titled “Special Note Regarding Forward-Looking Statements” and “Risk Factors” included elsewhere in this prospectus.
Overview
We develop and sell smart eyeglasses and sunglasses, which are designed to allow our customers to remain connected to their digital lives, while also offering vision correction and protection. Our flagship product, Lucyd Lyte, enables the wearer to listen to music, take and make calls, and use voice assistants to perform many common smartphone tasks hands-free. Innovative Eyewear owns the exclusive rights to the Lucyd brand and the Lyte product line.
The mission of our company is to upgrade the world’s eyewear, by adding useful tech features to comfortable and stylish sunglasses and eyeglasses. Our products enable seamless Bluetooth connection to your digital life and prescription vision correction in one affordable and convenient package. Our flagship brand of smart eyewear is called Lucyd, and Lucyd eyewear is enjoyed by thousands of people around the world who want the convenience and utility of wireless headphones and glasses in one. Furthermore, we are revolutionizing the concept of eyewear overall, by enabling connection to the powerful ChatGPT AI assistant right on our glasses, using a novel and ergonomic voice interface. The Company believes the advent of this powerful feature to our eyewear will significantly enhance user adoption of Lucyd frames, and will provide a new revenue stream for the business in the form of in-app purchases.
Since the launch of Lucyd Lyte, we have witnessed interest and demand from customers throughout the United States and have sold thousands of our smart eyeglasses. Within six months of the launch of Lucyd Lyte, several optical stores in the United States and Canada onboarded the product and we have had discussions with several other large eyewear chains (by number of locations) regarding retailing our product in both traditional eyewear and sporting goods locations. Our early partnerships include selling through BestBuy.com and DicksSportingGoods.com, and we are developing long-standing relationships with these retailers in an effort to bring the smart eyewear product category to mainstream retail. We believe smart eyewear is a product category whose time has come, and we believe we are well positioned to capitalize on and help develop this exciting new sector where vision correction and protection meets fashion meets connectivity in a user-friendly, mass market format, priced similarly to designer eyewear.
All of our products are designed in Miami, manufactured in Asia, and currently sold through two major types of channels:
| 1. | e-commerce, primarily via our website (Lucyd.co) and marketplaces such as Amazon, Bestbuy.com, and DicksSportingGoods.com; and |
| 2. | a growing network of independent eyewear and sporting goods stores. |
We apply a manufacturer suggested retail price (“MSRP”) of $199 (for our standard frames) to $229 (for our titanium frames) for non-prescription, polarized sunglass and blue light blocking glasses across our online channels, with our wholesale pricing offering volume discounts to these prices. Please refer to discussion in the Components of Results of Operations section below for more details regarding our pricing structure.
Our business model is capital light, as we have elected not to build our own manufacturing facilities and Company-owned retail distribution, but rather have contracted with existing sources of production and proven consumer-facing retail distribution.
Key Factors Affecting Performance
Expansion of retail points of purchase
In addition to sustained growth of our e-commerce business, our future revenues are correlated positively with our placement of Lucyd glasses in optical stores, as well as sporting goods stores and other specialty stores such as cellular shops. To address this, we assembled a team with decades of experience in the eyewear industry and are offering a strong co-op marketing program and reordering incentives program. We currently offer an expansive line of 16 different styles and several accessories, with plans to continuously expand this offering over time.
Retail store client retention and re-orders
Our ability to sustain and increase revenue is correlated positively with our ability to receive re-orders from stores, either directly or through our wholesale distributors. To support our sales to retail stores directly, we offer a strong co-op marketing program that includes free and paid store display materials. As part of this strategy, we have launched the Lucyd Digital Try-on Display for our resellers to help educate their in-store customers about Lucyd Lyte and enable customers to try them on virtually. This proprietary virtual try on software and display is central to our efforts to introduce traditional retail customers to Lucyd eyewear, and we are planning further enhancements to our merchandising displays to enable more immersive experiences.
Investing in business growth
We believe that people care about what they wear on their faces, and because we understand that customers have diverse preferences about the shape, size and design of their eyewear, we aim to continuously invest in the design and development of new models in an effort to provide the consumer with a wide selection of styles, colors and finishes.
We are offering a strong co-op marketing program with retail stores, and intend to expand our sales, marketing and brand ambassador teams to broaden our brand awareness and online presence. We will also increase our general and administrative expenses in the foreseeable future to cover the additional costs for finance, compliance, supply chain, quality assurance and investor relations as we grow as a public company.
Key Performance Indicators
Store Count (B2B)
We believe that one of the key indicators for our business is the number of retail stores onboarded to sell Lucyd Lyte. We started onboarding our first retail stores in June 2021. Currently, we have over 280 retail stores selling Lucyd Lyte primarily in the United States and Canada, across 230 unique wholesale accounts. This represents a growth of 50 new wholesale accounts in the first quarter of 2023, primarily across independent optical stores, optical buying groups and regional optical chains. Based on the existing demand for our products, current distribution and recently consummated supply agreements, we anticipate that our products will be available in a significant number of new third-party retail locations in 2023.
We expect this number to gradually increase as we continue to improve our product, roll out our co-op marketing program and introduce more of our virtual try-on kiosks into retail stores, to facilitate customer education and product sell-through.
Customer Ratings (B2C)
The Lucyd Lyte 2.0 product is receiving significantly higher ratings online compared to our previous products, indicating that customers are appreciative of improvements in product design, functionality and build quality. 14 out of 15 of the sunglass styles on Amazon carry a 4.3/5 rating or higher, compared to most products with an approximate 3.5/5 rating from our previous collection. We believe this is a very strong signal of early positive feedback on our products that indicates our ability to grow and scale with America’s largest online retailer and other platforms.
Number of online orders (B2C)
For our e-commerce business, we track the number of online orders as an indicator of the success of our online marketing efforts. As of March 31, 2023, we received a total of 13,174 orders from customers online. We believe that the addition of new styles, as well as further investment in brand awareness, product ambassadors, and influencer campaigns, will enable continued growth of online orders in the foreseeable future. We expect to allocate a significant portion of our advertising expenditures towards influencer marketing programs.
Components of Results of Operations
Net Revenue
Our revenue is generated from the sales of prescription and non-prescription optical glasses, sunglasses, and shipping charges, which are charged to the customer, associated with these purchases. We sell products through our retail store resellers, distributors, and on our own website Lucyd.co and on Amazon.
Our flagship product line increased in price with the launch of the version 2.0 models, from $149 to $199 on acetate models, and $179 to $229 on titanium models for non-prescription glasses across all of our online channels. In addition, we introduced a minimum advertised price on the new models of $169 and $199, respectively, to support our retail partners with guaranteed minimum pricing.
When adding a prescription lens upgrade to our glasses on the Lucyd.co website, the price can increase from between $40 for a basic clear prescription lens, all the way up to $450 for the latest Transitions® progressive bifocal lens. Glasses with prescription lenses are only available through our website Lucyd.co, while our sales through Amazon and to our retail partners only include non-prescription glasses.
U.S. consumers enjoy free USPS first class postage, with faster delivery options available for extra cost, for sales processed through our website. For Amazon sales, shipping is free for U.S consumers while international customers pay shipping charges. Any costs associated with fees charged by the online platforms (Shopify for Lucyd.co website and Amazon) are not recharged to customers. We charge applicable state sales taxes for both online channels and all other marketplaces on which we sell.
Our wholesale pricing for eyewear sold to retail store partners and distributors includes volume discounts, due to the nature of large quantity orders. The pricing includes shipping charges, while excluding any state sales tax charges applicable. Due to the nature of wholesale retail orders, no e-commerce fees are applicable.
Cost of Goods Sold
Cost of goods sold includes the costs incurred to acquire materials, assemble, and sell our finished products.
For retail sales placed on one of our e-commerce channels, these costs include (i) product costs held at the lesser of cost and net realizable value and inclusive of inventory reserves, (ii) freight, import, and inspection costs, (iii) optical laboratory costs for prescription glasses, (iv) merchant fees, (v) fees paid to third-party e-commerce platforms, and (vi) cost of shipping the product to the consumer.
For wholesale sales these costs include (i) product costs stated at the lesser of cost and net realizable value and inclusive of inventory reserves, (ii) freight, import, and inspection costs, and (iii) credit card fees.
When consumers place their orders directly on our online store, we save approximately 12-15% on marketplace fees compared to when consumers place their orders directly from third-party platforms like Amazon and eBay.
We expect our cost of goods sold to fluctuate as a percentage of net revenue primarily due to product mix, customer preferences and resulting demand, customer shipping costs, and management of our inventory and merchandise mix.
Over time we expect our total cost of goods sold on a per unit basis to decrease as a result of an increase in scale. Increase in scale is achieved as a result of increase in volumes from both business to consumer and business to business (retail store) orders. We continue to expand our products with line extensions and new models and broaden our presence in retail stores carrying our products.
Gross Profit and Gross Margin
We define gross profit as net revenues less cost of goods sold. Gross margin is gross profit expressed as a percentage of net revenues. Our gross margin may fluctuate in the future based on a number of factors, including the cost at which we can obtain, transport, and assemble our inventory, the rate at our vendor network expands, and how effective we can be at controlling costs, in any given period.
We anticipate our cost of goods sold, on a per unit basis, will decrease with scale, and this will likely have a positive impact on our gross margins.
Operating Expenses
Our operating expenses consist primarily of:
| ● | general & administrative expenses that include primarily consulting and payroll expenses, IT & software, legal, postage and non-customer product shipping, and other administrative expense; |
| ● | sales and marketing expenses including cost of online and TV advertising, marketing agency fees, influencers, trade shows, and other initiatives; |
| ● | related party management fees for a range of back-office services provided by Tekcapital LLC; and |
| ● | research and development expenses related to (i) development of new styles and features of our smart eyewear, (ii) development and improvement of our e-commerce website, and (iii) development of our Lucyd and Vyrb social media apps for wearables. |
Interest and Other Income, Net
Interest and other income, net, consists primarily of interest expense paid on convertible note loan due to the Parent.
Provision for Income Taxes
Provision for income taxes consists of income taxes related to foreign and domestic federal and state jurisdictions in which we conduct business, adjusted for allowable credits, deductions, and valuation allowance against deferred tax assets.
Results of Operations
Three Months Ended March 31, 2023 and 2022
The following table summarizes our results of operations for the three months ended March 31, 2023 and 2022:
| | Three months ended March 31, 2023 | | | % of Revenues | | | Three months ended March 31, 2022 | | | % of Revenues | | | Change between the three months ended March 31, 2023 and 2022 | | | % Change | |
Revenues, net | | $ | 144,921 | | | | 100 | % | | $ | 236,022 | | | | 100 | % | | $ | (91,101 | ) | | | -39 | % |
Less: Cost of Goods Sold | | | (134,630 | ) | | | 93 | % | | | (161,632 | ) | | | 68 | % | | | 27,002 | | | | -17 | % |
Gross Profit | | | 10,291 | | | | 7 | % | | | 74,390 | | | | 32 | % | | | (64,099 | ) | | | -86 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
Operating Expenses: | | | | | | | | | | | | | | | | | | | | | | | | |
General and administrative | | | (993,772 | ) | | | 686 | % | | | (606,972 | ) | | | 257 | % | | | (386,800 | ) | | | 64 | % |
Sales and marketing | | | (259,297 | ) | | | 179 | % | | | (584,796 | ) | | | 248 | % | | | 325,499 | | | | -56 | % |
Research & development | | | (151,169 | ) | | | 104 | % | | | (35,807 | ) | | | 15 | % | | | (115,362 | ) | | | 322 | % |
Related party management fee | | | (35,000 | ) | | | 24 | % | | | (35,000 | ) | | | 15 | % | | | - | | | | 0 | % |
Total Operating Expenses | | | (1,439,238 | ) | | | 993 | % | | | (1,262,575 | ) | | | 535 | % | | | (176,663 | ) | | | 14 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
Other Income (Expense) | | | 76 | | | | 0 | % | | | (499 | ) | | | 0 | % | | | 575 | | | | -115 | % |
Interest Expense | | | (1,939 | ) | | | 1 | % | | | (17,875 | ) | | | 8 | % | | | 15,936 | | | | -89 | % |
Total Other Expense | | | (1,863 | ) | | | 1 | % | | | (18,374 | ) | | | 8 | % | | | 16,511 | | | | -90 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
Net Loss | | $ | (1,430,810 | ) | | | 987 | % | | $ | (1,206,559 | ) | | | 511 | % | | $ | (224,251 | ) | | | 19 | % |
Revenue
Our revenues for the three months ended March 31, 2023 were $144,921, representing a decrease of approximately 39% as compared to revenues of $236,022 during the three months ended March 31, 2022. Our revenue is generated entirely from sales of eyewear products, namely smart frames, lenses, and accessories. The decline in revenue was primarily attributable to manufacturing and shipping delays of new product as a result of factory shutdowns related to COVID-19 outbreaks in China.
For the three months ended March 31, 2023, approximately 35% of sales were processed on our online store (Lucyd.co), 31% on Amazon, and 34% with reseller partners. This sales channel mix positively impacted our revenue for the period as compared with the prior year period, due to the fact we charge additional $35 to $275 for our prescription lenses available only on Lucyd.co. For the three months ended March 31, 2023, we generated $33,350 of revenue from sales of non-prescription frames and accessories and $16,918 was generated from sales of frames with prescription lenses. All of the $45,045 in sales generated on Amazon.com during the period were for non-prescription frames and accessories as we only offer prescription lenses through our website. Of the $50,268 in online sales generated through Lucyd.co, $16,918 related to frames with prescription lenses and $33,350 of glasses sold were with non-prescription lenses. E-commerce sales are the most material portion of our sales to date.
For the three months ended March 31, 2022, approximately 24% of sales were processed on our online store (Lucyd.co), 26% on Amazon, and 50% with retail store partners. For the three months ended March 31, 2022, we generated $207,306 of revenue from sales of nonprescription frames and $28,716 was generated from sales of frames with prescription lenses. All of the $61,576 in sales generated on Amazon.com during the period were for non-prescription frames as we only offer prescription lenses through our website. Of the $56,194 in online sales generated through Lucyd.co, $28,814 related to frames with prescription lenses and $27,380 of glasses sold were with non-prescription lenses.
Despite the decline in sales, there have recently been several notable advances in our technology products and partnerships which speak to the potential to grow revenues well beyond the current level:
| ● | Key hardware improvements include the development of a new proprietary four-speaker audio temple for the Lucyd Lyte flagship line, the increase in battery life of all of our flagship to 12 hours of playback, which is longer than the vast majority of wireless audio products, and design improvements to the frames overall that were the result of hiring two new expert eyewear designers. |
| ● | Key software improvements include the development of a live broadcasting feature on the Company’s proprietary Vyrb mobile app, the ability to import any form of audio content into Vyrb to support the migration of existing audio content creators to the platform, and the introduction of the Company’s Digital Try-on Display into dozens of retail stores, to offer an immersive product experience for in-store shoppers at our partner locations. |
| ● | The upcoming launch of the Nautica Powered by Lucyd line later this year, made possible by the exclusive agreement with Authentic Brands Group for the Nautica brand, represents significant revenue potential. We intend to partner with Nautica-branded sales channels and expect to be able to increase our presence in other retail channels via the Nautica brand, a household name in dozens of countries. |
Over time, we expect that the online portion of our sales will gradually decrease on a percentage basis but remain an important component of our total sales as we onboard more retail stores. We currently have a retail store presence in over 250 stores.
Cost of goods sold
Our total cost of goods sold decreased to $134,630 for the three months ended March 31, 2023, as compared to $161,632 for the three months ended March 31, 2022. This decrease is largely reflective of the decrease in sales volumes during the current year period as compared with the prior year period, partially offset by higher fees and quality assurance costs in the current year period. Smart eyewear is a highly specialized product that has the combined specifications and component requirements of a wireless Bluetooth headset and optical eyewear in one, meaning it is expensive to manufacture in small quantities of a few thousand at a time. As demand and awareness for smart eyewear continues to grow over time, the Company expects that its per unit cost will decrease as its order volumes increase.
Cost of goods sold for the three months ended March 31, 2023 included the cost of frames of $73,798; cost of prescription lenses incurred with our third-party vendor of $22,123; affiliate referral fees, sales commission expense, and e-commerce platform fees of $27,009, and quality assurance costs related to our products sold of $11,700. Out of $134,630 of our total cost of goods sold for the three months ended March 31, 2023, $22,123 related to orders with prescription lenses, while $112,507 pertained to non-prescription orders.
Cost of goods sold for the three months ended March 31, 2022 included the cost of frames of $101,633; cost of prescription lenses incurred with our third-party vendor of $34,420; and affiliate referral fees, sales commission expense, e-commerce platform fees of $25,579. Out of $161,632 of our total cost of goods sold for the three months ended March 31, 2022, $44,304 related to orders with prescription lenses, while $117,328 pertained to non-prescription orders.
Over time, we expect third-party retail stores to become our primary sales channel as we onboard additional stores. Consequently, we expect sales of prescription lens, offered through our website to decrease, as our third-party retail partners outfit our Lyte frames with more prescriptions. As a result, over time we expect prescription lens costs to gradually decrease as a percentage of our overall cost of goods sold. We anticipate growth in both wholesale and e-commerce channel sales in 2023, and we also expect corresponding growth in total cost of goods sold, primarily from additional product related costs.
Gross profit
Our gross profit was $10,291 for the three months ended March 31, 2023, as compared to $74,390 for the three months ended March 31, 2022. This decrease was primarily due to the aforementioned lower sales volumes driven by manufacturing and shipping delays of new product as a result of factory shutdowns related to COVID-19 outbreaks in China, and was also partially caused by higher fees and quality assurance costs.
We expect gross profit for the fiscal year ending December 31, 2023 to improve, primarily due to economies of scale from large, anticipated orders. As we expect retail stores to become our primary sales channel as we on-board new stores, we also expect our overall gross margin to be better than that of the wholesale channel, since no e-commerce platform fees or prescription lens costs apply in wholesale channels.
Operating expenses
Our operating expenses increased by 14% to $1,439,238 for the three months ended March 31, 2023, as compared to $1,262,575 for the three months ended March 31, 2022. This increase was primarily due to the continued expansion and growth of our business and included, but was not limited to, the following:
General and administrative expenses
Our general and administrative expenses increased by 64% to $993,772 for the three months ended March 31, 2022, as compared to $606,972 for the three months ended March 31, 2023. This increase was primarily attributable to (i) increased costs associated with being a publicly-traded company, including but not limited to directors’ remuneration, insurance expense, and public and investor relations, which resulted in an increase in expense of approximately $166,000, and (ii) an increase of approximately $134,000 in employee-related costs, resulting from increases in our staffing and new employment agreements entered into with executives in the latter portion of 2022.
Sales and marketing expenses
Our sales and marketing expenses decreased by 56% to $259,297 for the three months ended March 31, 2023, as compared to $584,796 for the three months ended March 31, 2022. The decrease was primarily due to a restructuring of the Company’s e-commerce business, including a full redevelopment of the main Lucyd.co e- commerce experience, as well as building and enhancing new product listings across Amazon and other third-party marketplaces, which have been completed as of March 31, 2023. While the Company was developing its brand presence across owned and third-party channels, the Company preserved marketing budgets as it focused on conversion optimization of its online listings. The Company intends to scale back up to its former level of advertising spend, but with a lower average cost of sale as a result of the improved web presence and product improvements.
We anticipate these costs to increase as we continue to invest in and build our brand, expand the number of e-commerce platforms on which we sell our products, invest in retail store co-op marketing programs to help educate our in-store customers about Lucyd Lytes, and increase our brand’s physical presence and role in the eyewear industry.
Research and development costs
Our research and development costs increased by 322% to $151,169 for the three months ended March 31, 2023, as compared to $35,807 for the three months ended March 31, 2022. This increase was primarily attributable to an expansion to the Company’s software initiatives to include the Lucyd app, and therefore increased the portion of the work hours spent by the CEO and CTO (as well as a portion of their stock-based compensation expense) on new software development on the Vyrb app, the new Lucyd app, and our glasses, as well as external coding teams we have engaged to write the programming for our software and enhance our software user experiences with code updates. Additionally, the Company hired a new software support agency to assist us in our software initiatives.
Related party management fee
Our related party management fee was $35,000 for each of the three months ended March 31, 2023 and 2022, based on the terms of the management services agreement between us and an affiliate of our Parent.
Results of Operations
Years Ended December 31, 2022 and 2021
| | Year ended December 31, | |
| | 2022 | | | | | | 2021 | | | | | | 2022 vs 2021 | | | | |
Revenues, net | | | 659,788 | | | | 100 | % | | | 690,670 | | | | 100 | % | | | (30,882 | ) | | | -4 | % |
Less: Cost of Goods Sold | | | (716,077 | ) | | | 109 | % | | | (542,416 | ) | | | 79 | % | | | (173,661 | ) | | | 32 | % |
Gross Profit | | | (56,289 | ) | | | -9 | % | | | 148,254 | | | | 21 | % | | | (204,543 | ) | | | -138 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
Operating expenses: | | | | | | | | | | | | | | | | | | | | | | | | |
General & administrative | | | (2,796,669 | ) | | | 424 | % | | | (1,386,079 | ) | | | 201 | % | | | (1,410,590 | ) | | | 102 | % |
Sales and marketing | | | (2,059,012 | ) | | | 312 | % | | | (1,771,012 | ) | | | 256 | % | | | (288,000 | ) | | | 16 | % |
Research and development | | | (524,692 | ) | | | 80 | % | | | (86,261 | ) | | | 12 | % | | | (438,431 | ) | | | 508 | % |
Related party management fee | | | (140,000 | ) | | | 21 | % | | | (109,975 | ) | | | 16 | % | | | (30,025 | ) | | | 27 | % |
Total Operating Expenses | | | (5,520,373 | ) | | | 837 | % | | | (3,353,327 | ) | | | 486 | % | | | (2,167,046 | ) | | | 65 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
Other Income/(Expense): | | | | | | | | | | | | | | | | | | | | | | | | |
Interest Expense | | | (105,171 | ) | | | 16 | % | | | (39,433 | ) | | | -6 | % | | | (65,738 | ) | | | 0 | % |
Total Other Income/(Expense) | | | (105,171 | ) | | | 16 | % | | | (39,433 | ) | | | -6 | % | | | (65,738 | ) | | | 0 | % |
| | | | | | | | | | | | | | | | | | | | | | | | |
Net Loss | | | (5,681,833 | ) | | | 861 | % | | | (3,244,506 | ) | | | 470 | % | | | (2,437,327 | ) | | | 75 | % |
Revenue
Our revenues for the year ended December 31, 2022, were $659,788, representing a decrease of approximately 4% as compared to revenues of $690,670 during the year ended December 31, 2021. Our revenue is generated entirely from sales of eyewear products, namely smart frames, lenses, and accessories. The decline in revenue was primarily attributable to several factors, including unfavorable channel mix as described in the following paragraph, partially offset by higher unit volumes, and favorable price impacts as we increased the MSRP of our flagship product line with the launch of the version 2.0 models in the current year. Additionally, due to the relative age of the version 1.0 models on the market, we deployed significant discounts on those models to assist in inventory turnover. Finally, we experienced an increase in the rate of customer returns due to minor product imperfections that were the result of supplier inaccuracies in manufacturing. These manufacturing imperfections have been wholly addressed with our new version 2.0 product line. In addition, we anticipate that new licensing agreements which we entered into during 2022 will help to increase our sales in 2023 and beyond.
For the year ended December 31, 2022, approximately 32% of sales were processed on our online store (Lucyd.co), 38% on Amazon, and 30% with reseller partners. This sales channel mix impacted our revenue for the period, due to the fact we charge an additional $35 to $275 for our prescription lenses available only on Lucyd.co. For the year ended December 31, 2022, we generated $579,214 of revenue from sales of non-prescription frames and accessories and $80,574 was generated from sales of frames with prescription lenses. All of the $252,799 in sales generated on Amazon.com during the period were for non-prescription frames and accessories as we only offer prescription lenses through our website. Of the $208,477 in online sales generated through Lucyd.co, $80,574 related to frames with prescription lenses and $127,873 of glasses sold were with non-prescription lenses. E-commerce sales are the most material portion of our sales to date. There were several notable advances in the Company’s technology products and partnerships in 2022 which speak to the potential to grow revenues well beyond the current level.
Key hardware improvements include the development of a new proprietary four-speaker audio temple for the Lucyd Lyte flagship line, the increase in battery life of all of our flagship to 12 hours of playback, which is longer than the vast majority of wireless audio products, and design improvements to the frames overall that were the result of hiring two new expert eyewear designers.
Key software improvements include the development of a live broadcasting feature on the Company’s proprietary Vyrb mobile app, the ability to import any form of audio content into Vyrb to support the migration of existing audio content creators to the platform, and the introduction of the Company’s Digital Try-on Display into dozens of retail stores, to offer an immersive product experience for in-store shoppers at our partner locations.
The Company believes that Nautica Powered by Lucyd line launching in 2023, made possible by the exclusive agreement with Authentic Brands Group for the Nautica brand, represents significant revenue potential in the coming year. The Company intends to partner with Nautica-branded sales channels, and expects to be able to increase our presence in other retail channels via the Nautica brand, a household name in dozens of countries.
For the year ended December 31, 2021, approximately 41% of sales were processed on our online store (Lucyd.co), 39% on Amazon and 20% with retail store partners. This sales channel mix impacted our revenue for the period, due to the fact we charge additional $35 to $275 for our prescription lenses available only on Lucyd.co. For the year ended December 31, 2021, we generated $530,885 of revenue from sales of nonprescription frames and $159,815 was generated from sales of frames with prescription lenses. All of the $266,733 in sales generated on Amazon.com during the period were for non-prescription frames as we only offer prescription lenses through our website. Of the $282,364 in online sales generated through Lucyd.co, $159,785 related to frames with prescription lenses and $122,579 of glasses sold were with non-prescription lenses. Lucyd.co sales are the most material portion of our sales to date, aided by higher price compared to retail store pricing as well as additional revenue recorded due to sales of prescription lenses.
We expect that the online portion of our sales will gradually decrease on a percentage basis but remain an important component of our total sales as we onboard more retail stores. We pursued growth in retail store segment in the year ended 2021 and during 2022, growing our retail store presence to over 250 stores as of December 31, 2022.
Cost of goods sold
Our total cost of goods sold increased to $716,077 for the year ended December 31, 2022, as compared to $542,416 for the year ended December 31, 2021. This increase was primarily driven by the combination of (i) a $78,288 write-off of inventory as a result of our physical inventory count procedures performed in December 2022 and (ii) damaged inventory received from one of our suppliers in 2022, which resulted in write-offs of $69,532 of inventory. Subsequently, we have engaged new suppliers for our product sourcing. The Company faced a supply chain challenge in 2022, and received two shipments of glasses that included a few thousand defective units. Once the high rate of defects became apparent, the Company immediately undertook a second 100% inspection of all inventory, and discovered the extent of the issue. The Company then worked to pull any problematic units from standing inventory, and also offered immediate replacement to any customers experiencing issues with any units from these batches. As a result of these problems, the Company severed the relationship with that supplier and conducted a detailed research investigation in China to identify better potential manufacturers of our products, and settled on two new suppliers.
Although the Company was reimbursed for a portion of these units from the old supplier, in some cases the units were not discovered to be defective until many months after receipt from the manufacturer and were not able to be compensated.
Early customer feedback on the Lyte 2.0 products and feedback from our independent inspection team, indicates that our products from our new suppliers have improved reliability and build quality compared to the original Lyte product, therefore the Company expects significantly less damaged inventory in the future.
In regards to the Company’s overall cost of goods, they have remained relatively constant with an increase of only $4-5 per unit compared to the previous supplier - however the improved components and aesthetics allowed the company to adjust the retail MSRP of our products upward by $50, which compensates well for this increase. Our wholesale prices adjusted $10 upward to compensate for this increase.
A positive development in COGs is a significant decrease in air shipping costs in the latter half of 2022 ($6.50 per unit at the height of the pandemic to $3.50 per unit in Q4 2022), with the company able to ship goods at approximately just over half the price per unit by air compared to 2021 and H1 2022, and with a new sea route available through our local 3PL partner at approximately $1.50/unit.
Smart eyewear is a highly specialized product that has the combined specifications and component requirements of a wireless Bluetooth headset and optical eyewear in one, meaning it is expensive to manufacture in small quantities of a few thousand at a time. As demand and awareness for smart eyewear continues to grow, the Company expects that its per unit cost will decrease as its order volumes increase.
Key components of cost of goods sold for the year ended December 31, 2022 included, but were not limited to, the cost of frames of $478,020, cost of prescription lenses incurred with our third-party vendor of $104,217, affiliate referral fees, sales commission expense, and e-commerce platform fees of $128,340, and quality assurance costs related to our products sold of $5,500. Out of our total cost of goods sold for the year ended December 31, 2022, $113,024 related to orders with prescription lenses, while $639,294 pertained to non-prescription orders.
For the year ended December 31, 2022, approximately 32% of sales were processed on our online store (Lucyd.co), 38% on Amazon, and 30% with reseller partners. This sales channel mix impacted our cost of goods sold, as the cost of prescription lenses attributable to our Lucyd.co sales increased our cost of goods sold through Lucyd.co while not impacting cost of goods sold for sales realized through Amazon or retail store partners. As we continue to grow our business, we expect that our cost of goods sold per unit will decrease as we realize economies of scale.
Key components of cost of goods sold for the year ended December 31, 2021 included, but were not limited to, the cost of frames of $303,909, cost of prescription lenses incurred with our third-party vendor of $144,957, affiliate referral fees, sales commission expense, e-commerce platform fees of $89,950, and quality assurance costs related to our products sold of $3,600. In Q4 2022, the company standardized all custom lens profit margins at 35%, except one variant, the basic Single Vision clear prescription lens, which is sold at a 17.5% margin to enable the company to advertise an competitive $40 basic prescription upgrade price.
A number of factors in 2022 caused our overall lens lab vendor costs to be higher than revenue from lenses sold:
| ● | Primarily, a large number of prescription units are provided annually as promotional items to influencers, investors, online and traditional media, and other press outlets for the purpose of gaining various forms of brand awareness, investor interest and site traffic for the company. |
| ● | The lens lab charges the Company $3,000 annually for the storage of frames in their facility. |
| ● | Improperly cut prescriptions, and pairs lost in transit, both infrequent occurrences, are typically replaced for free to enhance customer retention and customer lifetime value. |
| ● | When a frame does not properly fit a customer, sometimes a new lens set is provided for free in a different frame that will fit the customer properly. |
| ● | Warranty replacements sometimes require a new lens set to be made at no cost to the consumer. |
| ● | Our 7-day return policy provides customers comfort when trying our products, but sometimes causes a prescription pair to be returned (custom lenses are refunded in store credit, which may be used to purchase an additional lens set). With active customer care, we are able to keep our return rate low on Lucyd.co (our only prescription channel). |
| ● | In conclusion, prescription lenses can often be expensive, running to the hundreds of dollars per set for specialty and bifocal lenses, so a seemingly low number of free prescription pairs can cause a large deficit. However, prescription fitted smart eyewear is a USP of the Company and an incredibly useful tool for attracting positive media coverage. As we continue to scale up the volume of our ecommerce business, we fully expect the standardized lens profit margin to bring more revenue than overall lens costs in the future. |
Out of our total cost of goods sold for the year ended December 31, 2021, $211,620 related to orders with prescription lenses, while $330,796 pertained to non-prescription orders. For the year ended December 31, 2021, approximately 41% of sales were processed on our online store (Lucyd.co), 39% on Amazon and 20% from retail store partners.
Over time, we expect third-party retail stores to become our primary sales channel as we onboard additional stores. Consequently, we expect sales of prescription lens, offered through our website to decrease, as our third-party retail partners outfit our Lyte frames with more prescriptions. As a result, over time we expect prescription lens costs to gradually decrease as a percentage of our overall cost of goods sold.
We anticipate growth in both wholesale and e-commerce channel sales in 2023, and we also expect corresponding growth in total cost of goods sold, primarily from additional product related costs.
Gross (deficit) profit
Our gross profit decreased to negative $56,289 for the year ended December 31, 2022, as compared to positive $148,254 for the year ended December 31, 2021. This decrease was primarily driven by the aforementioned inventory write-offs during the current year totaling $147,820.
We expect gross profit for the fiscal year ending December 31, 2023, to improve, primarily due to economies of scale from large, anticipated orders. As we expect retail stores to become our primary sales channel as we on board new stores, we also expect our overall gross margin to be better than that of the wholesale channel, since no e-commerce platform fees or prescription lens costs apply in wholesale channels.
Operating expenses
Our operating expenses increased by 65% to $5,520,373 for the year ended December 31, 2022, as compared to $3,353,327 for the year ended December 31, 2021. This increase was primarily due to the expansion of our business following the launch of Lucyd Lyte in January 2021 and included, but was not limited to, the following:
General and administrative expenses
Our general and administrative expenses increased by 102% to $2,796,669 for the year ended December 31, 2022, as compared to $1,386,079 for the year ended December 31, 2021. This increase was primarily attributable to (i) an increase of approximately $436,000 in employee-related costs, resulting from increases in our staffing and new employment agreements entered into with executives, (ii) increased costs associated with being a publicly-traded company, including directors’ remuneration, legal and insurance expense, and public and investor relations, which altogether resulted in an increase in expense of approximately $416,000, (iii) bad debt expense in the current year of approximately $116,000, and (iv) an increase in consulting fees of approximately $103,000 as a result of our growth and increased used of consultants.
Sales and marketing expenses
Our sales and marketing expenses increased by 16% to $2,059,012 for the year ended December 31, 2022, as compared to $1,771,012 for the year ended December 31, 2021. The increase was primarily due to our multi-prong sales and marketing strategy, growing continuously over the past two years after the launch of our main product in January 2021.
We anticipate these costs to further increase as we continue to invest in and build our brand, expand the number of e-commerce platforms we sell our products on, invest in retail store co-op marketing programs to help educate our in-store customers about Lucyd Lytes, and increase our brand’s physical presence and role in the eyewear industry.
Related party management fee
Our related party management fee was $140,000 for the year ended December 31, 2022, as compared with $109,975 for the year ended December 31, 2021. This increase was due to increased scope of assistance received under the agreement, corresponding to continuous scale-up of Company’s operations after launch of its flagship product in the first quarter of 2021. The management fees are related to the management services agreement between us and an affiliate of our Parent.
Research and development costs
Our research and development costs increased by 508% to $524,692 for the year ended December 31, 2022, as compared with $86,261 for the year ended December 31, 2021. The increase was primarily due to stock-based compensation totaling $263,612 in addition to the increased cost of new frame development as the Company continued to expand its product line. Eyewear R&D includes the purchase and testing of new components, the compensation of staff involved primarily in frame design and the creation of new eyewear molds. Software R&D includes the portion of the work hours spent by the CEO and CTO on new software development on the Vyrb app and our glasses, and external coding teams we have engaged to write the programming for our software, and enhance our software user experiences with code updates. Other software costs such as the Apple Developer program are nominal fees only.
Liquidity and Capital Resources
Cash Flow Data:
| | Three months ended March 31, 2023 | | | Three months ended March 31, 2022 | |
Net cash flows from operating activities | | $ | (1,427,072 | ) | | $ | (630,869 | ) |
Net cash flows from investing activities | | | (136,960 | ) | | | (82,661 | ) |
Net cash flows from financing activities | | | 1,422,751 | | | | 675,554 | |
Net Change in Cash | | $ | (141,281 | ) | | $ | (37,976 | ) |
In February 2023, investors exercised warrants to purchase an aggregate of 408,600 shares of our common stock, at an adjusted exercise price of $3.75 per share, resulting in cash proceeds to us of $1,532,250.
We expect that operating losses could continue in the foreseeable future as we continue to invest in the expansion and development of our business. We believe our existing cash and cash equivalents, proceeds from our August 2022 initial public offering, proceeds received from investors’ exercises of warrants, funds available under our existing credit facility, and cash flows from operating activities will be sufficient to fund our operations for at least the next twelve months.
However, our future capital requirements will depend on many factors, including, but not limited to, growth in the number of retail store customers, the needs of our e-commerce business and retail distribution network, expansion of our product and software offerings, and the timing of investments in technology and personnel to support the overall growth of our business. To the extent that current and anticipated future sources of liquidity are insufficient to fund our future business activities and requirements, we may be required to seek additional equity or debt financing. The sale of additional equity would result in additional dilution to our stockholders. The incurrence of debt financing would result in debt service obligations and the instruments governing such debt could provide for operating and financing covenants that would restrict our operations. There can be no assurances that we will be able to raise additional capital. In the event that additional financing is required from outside sources, we may not be able to negotiate terms acceptable to us or at all. If we are unable to raise additional capital when required, or if we cannot expand our operations or otherwise capitalize on our business opportunities because we lack sufficient capital, our business, results of operations, financial condition, and cash flows would be adversely affected.
Between April 1, 2023 and April 16, 2023, investors exercised warrants to purchase an aggregate of 321,120 shares of our common stock, at an adjusted exercise price of $3.75 per share, resulting in cash proceeds to us of $1,204,200.
On April 17, 2023, we entered into a warrant exercise inducement letter agreement with certain accredited investors that were existing holders of warrants to purchase an aggregate of 150,000 shares of our common stock for cash, wherein the investors agreed to exercise all of their existing warrants at an exercise price of $3.75 per share. The gross proceeds we received from this transaction, before deducting estimated expenses and fees, was $562,000. In consideration for the immediate exercise of the existing warrants for cash, the exercising holders received new warrants to purchase up to an aggregate of 300,000 shares of common stock in a private placement pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended.
Off-Balance Sheet Arrangements
As of March 31, 2023, we did not have any off-balance sheet arrangements.
Critical Accounting Policies and Significant Developments and Estimates
Management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with GAAP. The preparation of our financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements, as well as the reported revenue generated and expenses incurred during the reporting periods, as well as related disclosures. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities and the amount of revenue and expenses that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions, and any such differences may be material. We believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgments and estimates.
We believe that our application of accounting policies, and the estimates inherently required therein, are reasonable. We periodically re-evaluate these accounting policies and estimates and make adjustments when facts and circumstances dictate a change. Historically, we have found our application of accounting policies to be appropriate, and actual results have not differed materially from those determined using necessary estimates.
Inventory
Our inventory includes purchased eyewear and is stated at the lower of cost or net realizable value, with cost determined on a specific identification method of inventory costing which attaches the actual cost to an identifiable unit of product. Provisions for excess, obsolete, or slow-moving inventory are recorded after periodic evaluation of historical sales, current economic trends, forecasted sales, estimated product life cycles, and estimated inventory levels. No provisions were determined as needed as of March 31, 2023 and December 31, 2022.
As of December 31, 2022, we recorded an inventory prepayment in the amount of $197,750, related to a down payment for eyewear purchased from the manufacturer; this product was shipped during the three months ended March 31, 2023, and there was no prepayment balance remaining as of March 31, 2023.
Intangible Assets
Intangible assets relate to:
| ● | Internally-developed and licensed utility and design patents. We amortize these assets over the estimated useful life of the patents. |
| ● | Capitalized software costs incurred due to development of the Vyrb app. We amortize these assets over the estimated useful life of the software application. |
We review our intangible assets for impairment whenever changes in circumstances indicate that the carrying amount of the assets may not be recoverable.
Income Taxes
We are taxed as a C corporation. We comply with Financial Accounting Standards Board (FASB) ASC 740 for accounting for uncertainty in income taxes recognized in a company’s financial statements, which prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. FASB ASC 740 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, and disclosure. Based on our evaluation, we have concluded that there are no significant uncertain tax positions requiring recognition in our financial statements. We believe that our income tax positions would be sustained on audit and do not anticipate any adjustments that would result in a material change to the Company’s financial position.
We have incurred taxable losses since inception but are current in our tax filing obligations. We are not presently subject to any income tax audit in any taxing jurisdiction.
Stock-Based Compensation
We account for stock-based compensation to employees and directors in accordance with FASB ASC Topic 718, which requires that compensation expense be recognized in the financial statements for stock-based awards based on the grant date fair value. For stock option awards, the Black-Scholes-Merton option pricing model was used to estimate the fair value of share-based awards. The Black-Scholes-Merton option pricing model incorporates various and highly subjective assumptions, including expected term and share price volatility. The expected term of the stock options was estimated based on the simplified method as allowed by Staff Accounting Bulletin 107 (SAB 107).
The share price volatility at the grant date is estimated using historical stock prices based upon the expected term of the options granted, using stock prices of comparably profiled public companies. The risk-free interest rate assumption is determined using the rates for U.S. Treasury zero-coupon bonds with maturities similar to those of the expected term of the award being valued.
Revenue Recognition
Our revenue is generated from the sales of prescription and non-prescription optical glasses, sunglasses, and shipping charges, which are charged to the customer, associated with these purchases. We sell products through our retail store resellers, distributors, and on our own website Lucyd.co and on Amazon.
To determine revenue recognition, we perform the following steps: (i) identify the contract(s) with a customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations in the contract, and (v) recognize revenue when (or as) we satisfy a performance obligation. At contract inception, we assess the goods or services promised within each contract, determine those that are performance obligations, and assess whether each promised good or service is distinct. We then recognize as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied. In instances where the collectability of contractual consideration is not probable at the time of sale, the revenue is deferred on our balance sheet as a contract liability, and the associated cost of goods sold is deferred on our balance sheet as a contract asset; subsequently, we recognize such revenue and cost of goods sold as payments are received.
All revenue, including sales processed online and through our retail store resellers and distributors, is reported net of sales taxes collected from customers on behalf of taxing authorities, returns, and discounts.
For sales generated through our e-commerce channels, we identify the contract with a customer upon online purchase of our eyewear and transaction price at the manufacturer suggested retail price (“MSRP”) for non-prescription, polarized sunglass and blue light blocking glasses across all of our online channels. Our e-commerce revenue is recognized upon meeting of the performance obligation when the eyewear is shipped to end customers. Only U.S. consumers enjoy free USPS first class postage, with faster delivery options available for extra cost, for sales processed through our website and on Amazon. For Amazon sales, shipping is free for U.S consumers while international customers pay shipping charges on top of MSRP. Any costs associated with fees charged by the online platforms (Shopify for Lucyd.co website and Amazon) are not recharged to customers and are recorded as a component of cost of goods sold as incurred. The Company charges applicable state sales taxes in addition to the MSRP for both online channels and all other marketplaces on which the company sells products.
For sales to our retail store partners, we identify the contract with a customer upon receipt of an order of our eyewear through our Shopify wholesale portal or direct purchase order. Our revenue is recognized upon meeting the performance obligation which is delivery of our eyewear products to the retail store and also recorded net of returns and discounts. Our wholesale pricing for eyewear sold to the retail store partners includes volume discounts, due to the nature of large quantity orders. The pricing includes shipping charges, while excluding any state sales tax charges applicable. Due to the nature of wholesale retail orders, no e-commerce fees are applicable.
For sales to distributors, we identify the contract with a customer upon receipt of an order of our eyewear through a direct purchase order and after collectability of substantially all of the contract consideration is probable. Our revenue is recognized upon meeting the performance obligation, which is delivery of our eyewear products to the distributor and is also recorded net of returns and discounts. Our wholesale pricing for eyewear sold to distributors includes volume discounts, due to the nature of large quantity orders. The pricing includes shipping charges, while excluding any state sales tax charges applicable. Due to the nature of wholesale distributor orders, no e-commerce fees are applicable.
The Company’s sales to both retail partners and through our e-commerce channels do not contain any variable consideration.
We allow our customers to return our products, subject to our refund policy, which allows any customer to return our products for any reason within the first:
| ● | 7 days for sales made through our website (Lucyd.co) |
| ● | 30 days for sales made through Amazon |
| ● | 30 days for sales to most wholesale retailers and distributors (although certain sales to independent distributors are ineligible for returns) |
For all of our sales, at the time of sale, we establish a reserve for returns, based on historical experience and expected future returns, which is recorded as a reduction of sales. Additionally, we review all individual returns received in the month following the balance sheet date pertaining to orders processed prior to the balance sheet date in order to determine whether an allowance for sales returns is necessary. The Company recorded an allowance for sales returns of $1,925 and $24,897 as of March 31, 2023 and December 31, 2022, respectively.
Shipping and Handling
Costs incurred for shipping and handling are included in cost of goods sold at the time the related revenue is recognized. Amounts billed to a customer for shipping and handling are reported as revenues.
Earnings/loss per share
We present earnings and loss per share data by calculating the quotient of earnings/(loss) divided by the weighted average number of common shares outstanding during the period as required by ASC 260-10-50. For the three months ended March 31, 2023 and 2022, all shares underlying the related party convertible debt and common stock options were excluded from the earnings per share calculation, due to their anti-dilutive effect.
Business
Our History
We develop and sell smart eyeglasses and sunglasses, which are designed to allow our customers to remain connected to their digital lives, while also offering prescription eyewear and sun protection. Founded and headquartered in Miami, Florida, we were initially organized as a Florida limited liability company effective August 15, 2019. We were founded by Lucyd Ltd., the inventor and licensor of the technology that our products are based upon which is a portfolio company of Tekcapital Europe Ltd. (“Tekcapital”). Tekcapital is a U.K. based university intellectual property accelerator. Tekcapital builds portfolio companies around new technologies. On March 26, 2020, we converted from a Florida limited liability company into a Florida corporation.
Our Product
In January 2020, we introduced our first beta product and began market testing.
In January 2021, we officially launched our first commercial product, Lucyd Lyte® (“Lucyd Lyte”). This initial product offering embodied our goal of creating smart eyewear for all day wear that looks like and is priced similarly to designer eyewear, but is also light weight and comfortable, and enables the wearer to remain connected to their digital lives. The product was initially launched with six styles, and in September 2021, an additional six styles were added.
We recently launched version 2.0 of our Lucyd Lyte eyewear, and our current product offering consists of 16 version 1.0 models and 15 version 2.0 models, which offers a similar amount of style variety as many traditional eyewear collections. All styles are each available with 70 different lens types, resulting in hundreds of variations of products currently available.
Additionally, Lucyd Lyte glasses enable the wearer to listen to music, take and make calls, and use voice assistants to perform many common smartphone tasks hands-free. Some of the many things that can be done with Lucyd Lyte glasses include:
| 1. | “Send a voice message to (contact)”: this command begins the recording of an audio message to be sent to named contact. |
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| 2. | “Send a text to (contact)”: begins recording of a speech-to-text message to be sent by SMS to named contact. |
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| 3. | “Call (contact)”: speed-dials the named contact. |
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| 4. | “Send $___ to (contact)”: this command allows our user to send money to a contact via Venmo or Apple Pay. Follow the digital assistant’s prompts to confirm. |
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| 5. | “Check my messages”: this command reads out our user’s latest incoming text messages and offers a prompt to reply to each. Close out the digital assistant to end the readout. |
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| 6. | “Check my mailbox”: this command announces the number of unread emails, and reads them out with a prompt to continue after each one. In the prompt after each one, our customers can tell their digital assistant “Reply” and dictate an email response to the previous email. |
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| 7. | “Find (cuisine type) food nearby”: this command reads through a list of nearby restaurants and their ratings, and prompts our user for directions or to call after each one. |
| 8. | “Call me an Uber”: this command prompts our user on which type of Uber ride they want, then asks to confirm to send a car to our user’s location. |
| 9. | “What time is it?”: announces the current time. |
| 10. | “Play (song/album/artist)”: this command begins playing the requested song, album or artist via Apple Music. |
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| 11. | “Get me directions to (location)”: this command begins navigating on phone, with audible directions on glasses. |
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| 12. | “Take a memo”: this command begins recording a speech-to-text memo in Notes. Say “Read my Notes” to play back. |
Since the launch of Lucyd Lyte, we witnessed interest and demand from customers throughout the United States and have sold thousands of our smart glasses. Within six months of the launch of Lucyd Lyte, several optical stores in the United States and Canada have on- boarded the product and we have had discussions with several other large eyewear chains (by number of locations) regarding onboarding our product. We believe smart eyewear is a product category whose time has come, and we believe we are well positioned to capitalize on and help develop this exciting new sectorwhere eyewear meets electronics in a user-friendly, mass market format, priced similarly to designer eyewear.
In first quarter of 2022 we introduced a virtual try-on kiosk for select retail stores. This device introduces our products to prospective retail customers and enables them to digitally try-on our line of smart glasses in a touch free manner.
We anticipate introducing six styles of Nautica smart eyewear, six to twelve additional styles of Lucyd Lyte glasses, and our first Bluetooth safety glasses in 2023. In addition, we anticipate the following upgrades to accessory products in 2023:
| ● | The patent-pending Lucyd charging dock will be upgraded to feature a charging status LED and USB data capability, enabling it to be used as a USB hub for computers in addition to a charging hub. |
| ● | The Lucyd virtual try-on kiosk will be upgraded with a store control panel enabling the kiosk owner to change the display into Spanish language mode and control which frames and lens options are shown in the digital experience. |
In the fourth quarter of 2022, we introduced key features in the Vyrb app, including live broadcasts for up to 100 users in one digital “room”, and the ability to upload external audio content into Vyrb, enabling longstanding content creators to import their existing libraries swiftly into the platform. Also in the fourth quarter of 2022, we completed development of core audio eyewear product improvements, such as upgrading all frames to quadraphonic sound, which have been rolled out across all new eyewear models as of January 2023.
Recently in April 2023, we have introduced a major software upgrade for our glasses with the launch of the Lucyd app for iOS/Android. This free application enables the user to converse with the extremely popular ChatGPT AI language model on the glasses, to instantly gain the benefit of one of the world’s most powerful AI assistants in a handsfree ergonomic interface. The app deploys a powerful and unique Siri and Google Voice integration with the Open AI API for ChatGPT, developed internally by the company and now pending patent. This development instantly makes all Lucyd eyewear perhaps the smartest smartglasses available today, and represents a significant marketing opportunity for the company’s core smartglass product, and a potential in-app purchase revenue stream for the company.
Our Mission
Our mission is to Upgrade Your Eyewear®. Our smart eyewear is a fusion of headphones with glasses, bringing vision correction and protection together with digital connectivity and clear audio, while also offering a safer solution for listening to music outdoors (as compared to in-ear headphones). The convenience of having a Bluetooth headset and comfortable glasses in one, especially for those who are already accustomed to all-day eyewear use, offers a lifestyle upgrade at a price most consumers can afford.
In a sense, we view this integration of technology and vison correction/protection as the next evolutionary step in the development of eyewear. Over the entire course of eyewear development and history, many of the innovations have dealt with improving the lenses of the glasses. Notably, eyewear frames have not improved much in the past 400 years, with the exception, in our view, of the utilization of plastic to reduce weight and provide a wider range of designs and finishes, and the introduction of new hinge types. We view the integration of Bluetooth technology into the arms of the glasses as one of the key next steps to Upgrade Your Eyewear®.
Our focus is to enhance one of the world’s most important wearables: eyewear.
Additionally, as part of our commitment to a great customer experience, we listen to feedback from our customers, and continuously strive to improve customer satisfaction and experience with our products. Our customers’ extensive feedback pointed to a need and desire for better interaction with social media while on-the-go. We are addressing this need by developing an exciting software application called Vyrb, which enables Lucyd Lyte users to hear and reply to social media posts, with their voice, hands-free, through their glasses (“Vyrb”). Other Vyrb users will be able hear these posts. Additionally, Vyrb offers Lucyd Lyte users external social media sharing features, which allow posts made on Vyrb to be exported to other platforms such as Facebook, Twitter and Instagram. We launched Vyrb in December 2021 for both iOS and Android, and we believe that Vyrb is one of the first social applications designed specifically with a focus on smart glasses and other voice enabled wearables. We subsequently expanded Vyrb’s capabilities through software upgrades released in the fourth quarter of 2022, and anticipate the commercial launch of Vyrb in the fourth quarter of 2023.
We have made strong strides towards our goal of making smart eyewear accessible to the mass market. Several developments towards this end include developing our smart frames in two temple lengths, with a third length planned for 2023; the introduction of smart eyewear specifically for women and youth, which are typically missing from similar offerings; and the introduction of smart eyewear for adults with petite or narrow faces. In addition, we have launched an expansive offering consisting of 16 version 1.0 models and 15 version 2.0 models so far, which offer a similar amount of style variety as many traditional eyewear collections. When paired with the Vyrb application, Lucyd Lyte glasses will provide a new and safer wearable user experience suitable for everyone.
Our goal is to become a meaningful player in the smart eyewear market. Innovative Eyewear’s early successes have shown our ability to not only compete, but to lead in this rapidly changing and expanding technological eyewear market, and our goal is to continue spearheading innovation in the field.
Giving Back
We donate an optical frame for every Lucyd Lyte sold at retail locations.
We are also very active in supporting the various communities we serve through donations and support. From the beginning, Innovative Eyewear has supported those in need through its donation of glasses frames to New Eyes (https://new-eyes.org/about-us), a charity dedicated to helping children and adults in need of eyewear. We’ve partnered with New Eyes because they fit the Lucyd brand mission: enhancing the vision of people all over the world, and we believe that it simply is the right thing to do.
Additionally, university students, educators, healthcare workers, uniformed service members, and veterans are eligible for an ongoing 18% discount off all frames and lens upgrades on www.lucyd.co.
Our Competitive Strengths
A Unique Solution to a Common Problem. While immensely useful, smartphones can present a safety hazard to motorists, pedestrians and cyclists because smartphones can distract people from the task or activity at hand. In 2021, pedestrian deaths were at a 40-year high according to the Governors Highway Safety Association, and experts believe smartphones were partially to blame. Recent data from the Governors Highway Safety Association indicates that from 2010 to 2020, the number of pedestrian deaths rose by 54%, while all other traffic deaths increased by 13% (Pedestrian Traffic Fatalities by State: 2021 Preliminary Data (https://www.ghsa.org/resources/Pedestrians22). We believe that the distraction created by smartphones originates in two forms: (1) via headphones or earbuds, where the user is deprived of full audible situational awareness; and, (2) via the visual interface of the phone, which distracts the user completely from their surroundings. Lucyd Lyte open ear audio helps address this problem by having the speakers mounted at the temples (in the arms) of the glasses. There is nothing in the ear canal and, as a result, individuals can better maintain situational awareness, such as hearing the traffic around them, as well as nearby sounds. Many of our competitors have relatively bulky speakers enclosed within the temples, while Lucyd Lyte’s speakers and temples are thin, which allows them to look similar to traditional designer glasses. Furthermore, through the quick and easy touch controls on the Lucyd Lyte, the wearer can perform many tasks that they would normally pull out their phone for, untethering the eyes of the user from their smartphones throughout the day and enabling them to remain more visually vigilant and aware of the traffic around them.
Affordable Price Point. Our Lucyd Lyte eyewear provides both optical-quality glasses and a Bluetooth headset together, at roughly the same price as a traditional pair of designer glasses, which is core to the disruptive potential of our product. Our Lucyd Lyte line of smart eyewear enables prescription and sunglass wearers to interact with digital assistants and social media without having to take their eyes off the road and are nearly handsfree, thereby improving the safety and convenience of taking calls, listening to music and audibly accessing digital information on the go. The Manufacturer’s Suggested Retail Price (“MSRP”) for Lucyd Lyte 2.0 eyewear starts at $199, with advanced options and customizations available at higher price points, which are at the discretion of the customer. A basic prescription lens upgrade is offered for $40. By comparison, most of our U.S.-based competitors offer products that are more expensive, starting at approximately $249 or higher, with higher costs to add prescriptions.
Quality. All of our frames can be outfitted in-house or by optical resellers with any combination of prescription, sunglass, readers and blue light formats. Our frame fronts are made with what we believe are high quality optical materials to ensure easy lens fitting by any optician.
Customizable Product Offering. There are 70 lens types available for Lucyd Lyte, making it the most customizable smart eyewear in the world. Innovative Eyewear has a partnership with a high-quality optical lab in Boston to produce prescription and custom lenses for our frames quickly and affordably. Our contract with a third-party optical lab also allows us to offer direct prescription fulfillment to our customers.
Comfort. At just 1.0-1.45 ounces, our eyewear has a feather-light fit, suitable for all day vision correction or sun protection (traditional glasses weigh about 1 ounce). This is especially important while on the go. Our 1.0 ounce titanium aviators are among the lightest smart eyewear ever made.
Long Battery Life. At 12 hours of playback per charge, Lucyd Lyte 2.0 glasses outpace most, if not all, of the competition on battery life.
Capital Light Business Model. All of our products are sold through multiple e-commerce channels, including on our website (Lucyd.co), BestBuy.com, DicksSportingGoods.com and Amazon.com, and are distributed through optical or other retailers (such as, but not limited to, Metro Optics Eyewear and Marca Eyewear Group, Inc.). We believe this capital light approach is highly scalable and efficient in the deployment of resources. We view “capital light” as being more efficient by obviating the need to build factories and retail stores, while partnering with existing companies in both of these groups.
Multiple-Channel Approach. We sell our products both through multiple online channels and multiple categories of brick-and-mortar retail stores. We believe this multi-channel approach provides us with an advantage against our competitors who sell in a narrower selection of channels.
Experienced Management Team. We have an experienced board of directors with more than 80 years of combined experience in the eyewear industry, and a management team with substantial experience in software and electronics engineering and operating eyewear and technology companies.
Our Business Strategy
Whenwe organized Innovative Eyewear four years ago, there were, in our view, no attractive smart eyewear that addressed the basicconsumer need for good looking designer glasses that were stylish, comfortable, lightweight and provided the functionality ofhearables, and priced around the same as regular glasses.
All of our products are designed in Miami, manufactured in China, and sold through e-commerce, channels, including on our website (Lucyd.co), BestBuy.com, DicksSportingGoods.com and Amazon.com, or sold by over 200 optical and sporting goods retailers. Additionally, we are pursuing online and in-store big box retailers, and in-store and online specialty Based on the existing demand for our products, current distribution and recently consummated supply agreements, we anticipate that our products will be available in a significant number of new third-party retail locations in 2023.
We believe that people care about what they wear on their faces, and because we understand that customers have diverse preferences about the shape, size, and design of their eyewear, we aim to continuously introduce new models in an effort to offer a wide variety of designs. We continuously present new models of eyewear to our network of followers to vote on those styles they find most appealing. We view this as community approved design.
Sales
We have two major sales channels: (1) e-commerce via Lucyd.co and Amazon and, (2) our ongoing development of a network of eyewear, sporting goods and electronics resellers, including but not limited to, BestBuy.com, DicksSportingGoods.com and Brookstone, to offer our frames. Most of our resellers are experienced opticians who provide valuable feedback that informs the development of our product lines, which we would not receive if we were solely direct to consumer. Additionally, we have a robust presence on multiple e-commerce and social media platforms, which facilitates several customer on-ramps for the Lucyd brand, and numerous ad campaign strategies. Building on our early successes of driving traffic to Lucyd.co, the website run by a subsidiary of our majority stockholder, from Facebook and TikTok, we deploy high quality content on multiple platforms to continuously keep customers engaged and drive brand awareness.
We have two levels of margins, one for business to consumers (“B2C”), and one for business to business (“B2B”). The majority of our sales have been through e-commerce with current gross margins of approximately 75%; retail sales have gross margins of approximately 40%. Lens upgrades sold on Lucyd.co have a standardized profit margin of approximately 35%. As a company still in an early growth stage, we are investing heavily in our B2C and B2B efforts to capture as much market share as possible, which included in fiscal year 2022 several activities which impacted the gross deficit. Among these promotional activities were single-item B2C discounts, heavy B2B discounts on large bulk orders, a large number of free sample units provided to media, influencers and reviewers, and significant spending on upsells, promo items, and merchandising materials which were in many cases given to B2C and B2B customers for free. Additionally, the logistical costs of the high number of B2C returns in fiscal year 2022 contributed to the deficit. However, with the better establishment of the Lucyd brand expected in 2023, and with the current improvements to the product and increase in MSRP by $50, we expect to neutralize the gross deficit in fiscal year 2023 as our per-unit profitability is increasing. We expect that our retail sales will account for the majority of our sales by the end of 2023.
E-commerce Channels
| 1. | Company website: Lucyd.co |
Lucyd.co is our primary e-commerce point of sale. The site offers the most customization options of any of our sales channels and a full prescription lens lab, offering a total of 70 different lens combinations (21 key lens tints offered in plano, single prescription and progressive bifocal; seven types of reading lenses). Additionally, the Lucyd website ships worldwide and is used to provide a quick and smooth buying experience.
Amazon.com/lucyd is our brand shop on Amazon. It drives approximately half of our online sales, but limits the number of variations we can offer on our frames (e.g., prescription lenses are not permitted on Amazon). However, through Amazon, we are still able to offer color lens sunglass variants and blue light blocker pairs, in addition to our charging dock accessory item. We are constantly testing traffic flow to Lucyd.co vs. Amazon to ensure our online ad spend is fully optimized.
| 3. | Walmart.com, BestBuy.com, DicksSportingGoods.com, Brookstone.com, eBay and Touch of Modern |
In addition to our key online sales channel through Lucyd.co, our products are also sold on Walmart.com, BestBuy.com, DicksSportingGoods.com, Brookstone.com, and eBay.
Not only do we use social media to drive traffic to our main sales channels, but we also take advantage of intra-social shops as well, and have deployed shopping experiences through Facebook, Instagram and TikTok to gain further brand awareness.
We also offer two affiliate platforms via shareasale.com and Shopify for peer-driven sales. The Shareasale program is for professional affiliate and deal promotion companies, and increases revenue on Lucyd.co by offering direct commissions in exchange for converting web traffic. The Shopify affiliate program enables Lucyd brand enthusiasts to get a financial reward for sharing the brand, and operates on similar terms as the Shareasale program where we provide a commission rate in exchange for converting web traffic.
Retail Channels
| 1. | Independent Eyewear Stores |
The core of our B2B business is formed by our relationship with numerous eyewear store retailers across the United States and Canada, which provide Lucyd Lyte frames directly to their optical customers. Many of these retail stores have placed multiple stocking orders since launching our wholesale business in June 2021. To support our resellers, we offer a strong co-op marketing program that includes free store display materials. As part of this strategy, we have launched a digital try-on kiosk for our resellers to help educate their in-store customers about Lucyd eyewear, and increase our brand’s physical presence in the optical industry. We have launched our in-store digital try-on kiosk to key retailers in December 2021 and we have upgraded the kiosk’s capabilities to allow for the customer to try different lens tints, explore an FAQ, download the company’s Vyrb social app, and enable in-store reordering from the kiosk.
| 2. | National Eyewear Chains |
Lucyd eyewear is currently being evaluated by multiple leading eyewear chains in the United States for potential inclusion in their brick-and-mortar stores. After the recent introduction of Ray Ban Stories smart eyewear, many retailers are keen to include one or more smart eyewear products in their stores and on their e-commerce platforms. Based on our current discussion with several major optical chains (by store size), we believe at least one major optical chain or national optical buying group will onboard our product line in 2023.
| 3. | Big Box Retail Stores (Electronics, sporting goods, general merchandise) |
In addition to mainstream optical channels, we have begun placing our products and are pursuing additional product placements with leading big box stores, either in their eyewear or electronics departments. Specifically, we have begun selling our products on Bestbuy.com and Dickssportinggoods.com.
| 4. | License Agreements and Specialty Retail Stores |
We are leaving no stone unturned in our mission to bring smart eyewear mainstream. We have licensed two leading fashion brands, Nautica and Eddie Bauer, to produce new powered by Lucyd cobranded frames, which will be launched in 2023 on Lucyd sales channels as well as in select Nautica and Eddie Bauer stores. Additionally, we are pursuing other potential sales outlets including inline and specialty retailers.
Manufacturing and Supply Chain
Our products are designed and specified in the United States and subsequently manufactured in China. The products are designed in-house, 3-D CAD files are then produced with product renderings. We then subject these rendered images for focus group review, to determine which designs we should move to the prototype development stage. Pre-production prototypes are developed by our factories in China to our specifications. Our factories source components for the smart eyewear in China including plastic and titanium for the frames, electronic components, speakers, microphones and batteries. All packaging is designed in Miami and fabricated in China. Once completed, our products are tested in the United States, to assess functionality, fit and finish. Production orders are placed and fabricated in China based on anticipated demand, whereupon they undergo a rigorous thirteen-point third party product inspection process. The inspection is conducted on 100% of our manufactured products. Inspections include testing procedures to help ensure our customers receive only functional, high-quality products. For large bulk orders from clients, we are able to order this inventory on demand, due to the expected lead times in the traditional frame sourcing business.
All of our frames are manufactured with prefabricated, ready to wear sunglass or blue light lenses, and are directly shipped to the customer in this state if the customer declines purchasing custom lens upgrades. If a customer orders with prescription or specialty lenses, then the smart eyewear frames are sent to an optical contractor laboratory in Boston, Massachusetts, to have the lenses cut, ground and mounted in the frames, whereupon they are directly shipped to customers.
Our in-store kiosks are comprised of a fixture, a tablet, and proprietary software, which enable the prospective customer to virtually try on our smart glasses. The fixtures, which sport our Company name, are manufactured by a U.S.-based third-party company, and are designed to serve as a holding mechanism for the tablet. We purchase each tablet through Amazon.com, which is then fitted to the kiosk fixture. The Company currently utilizes Samsung’s tablets for its in-store kiosks. Once each tablet is fitted to its kiosk fixture, the tablet is loaded with software which ultimately presents the Company’s try-on application. This software-based chain of processes relies on the tablet’s built-in camera and enables the prospective buyer of our smart eyewear to virtually try-on the glasses, which are superimposed in different styles onto the customer’s face using the front-facing camera. The tablet is fitted to the kiosk and loaded with our software in our Miami facility, from where they are shipped to a third-party warehouse in Miami for distribution to retail stores.
Marketing
We employ a 360-degree marketing strategy that encompasses both brand and user generated content syndication across earned, owned and paid platforms (channels where the company pays a fee to have its product advertised). Long form and video content generation are a key focus points for the brand, they allow us to better leverage both emerging and critical smart eyewear narratives through persistent search engine optimization (SEO); increasing our organic brand awareness across the board, in addition to strategic loyalty, influencer and affiliate marketing campaigns.
Our online marketing strategy is primarily driven by pay-per-click advertisements on mainstream search engines, social media apps, and Amazon and other marketplaces. In addition, we support our primary efforts with influencer created and promoted “UGC” (user-generated content), email automations and newsletters, and website push notifications. We have also deployed nationwide broadcast cable TV campaigns and plan to use this channel in the future.
We believe we are trendsetters in creating relevant, omni-channel touchpoints that derive meaningful experiences and products designed for our customers.
Our wholesale marketing strategy is primarily focused on traditional sales email and call outreach, national and regional optical trade shows, and optical and athletic trade advertisements.
From a brand perspective, strategically offering value-added optical smart eyewear coupled with expansive end-user customization our social audio app initiatives can potentially rapidly expand brand awareness and revenue. At Innovative Eyewear, we strive to lead and own critical narratives within the Bluetooth and smart eyewear space.
We seek to create memorable experiences and products that resonate with our customers, coupled with premium content and campaigns designed to expand our brand presence and market share. We also attend major regional eyewear and sporting goods trade shows to build awareness among our potential retail partners.
Our influencers
To accelerate brand awareness and product sales, we are embarking on an influencer strategy to engage leading figures in sports and the arts, who like and enjoy wearing Lucyd Lyte®. To date we have onboarded Chris Clark, a pro golfer, Monique Billings, a WNBA basketball player, and Hadar Adora, an up-and-coming musical artist. We plan to add additional influencers to enhance awareness and sell-through for a number of key demographics.
Influencers are a key part of our marketing strategy, as they help our products relate to large, variable audiences. Lucyd Lyte is a perfect fit for the fitness tech and audio product spaces, so athletes and musicians are a natural fit for our brand and the active lifestyles that Lucyd products promote. We plan to add A-list musical talent to the brand in the near future, as well as a host of audio content creators to support the Vyrb experience.
Our Market Opportunity
According to Statista, the total addressable market for eyewear in the U.S. is projected to be $33.8 billion in 2023. The market for digital assistants like Siri, Google Voice, Bixby and Alexa has grown rapidly worldwide, and is projected at $4.5 billion in revenue in 2023. The worldwide hearables market was estimated at $69.0 billion in 2022. We view the popularity of hearables as an important catalyst for the smart eyewear market.
The common denominator among markets for the hearables and digital assistant is that they facilitate real-time access to digital data, whether it is through music, calls, navigational directions, or information, among other uses. The combination of hearables and digital assistants provides a transparent, ergonomic interface between the users and their digital lives. At Innovative Eyewear, we are dedicated to a touch-free interface and untethering our customers eyes from their smartphone screens, through our smart eyewear product.
The synergistic fusion of these three markets enables, in our view, an opportunity to create a completely new experience of connected eyewear, which smoothly delivers the functionality of both optical glasses and headphones, eliminating the need for either on its own. Nevertheless, several orthodoxies of the eyewear industry still hold, namely: if you want to sell a lot of eyewear, we believe it should be attractive, stylish, comfortable (e.g., lightweight, which we believe to be approximately 1oz) and cost roughly the same as traditional eyewear. This is what we have sought to achieve, and in our view have accomplished with the introduction of Lucyd Lyte eyewear.
Intellectual Property
We license from Lucyd Ltd., a subsidiary of our majority stockholder, an intellectual property portfolio designed to protect our unique eyewear designs and certain technological features in current and anticipated future products. More recently, the company has begun filing patents under its own name.
We have licensed and filed 63 patents to date, covering many of our current product designs and certain advanced features such as Vyrb, replaceable front frames, and multi-channel Bluetooth connectivity. The Company will seek to file new IP to protect new styles and features of its smart eyewear as they are introduced.
Our current U.S. and foreign patent portfolio is as listed below:
Application/Patent Number | | Title | | Country | | Filing Date | | Assignors/Assignee | | Reel/Frame No. | | Status | | Grant Date | | Anticipated Expiration Date |
10,908,419 | | Smartglasses and Methods and Systems for Using Artificial Intelligence to Control Mobile Devices Used for Displaying and Presenting Tasks and Applications and Enhancing Presentation and Display of Augmented Reality Information | | US | | June 28, 2018 | | Clifford M. Gross, Harrison Gross / Lucyd Ltd. | | 046324/0147 | | Issued | | February 2, 2021 | | October 5, 2038 (Patent Term Adjustment 99 days) |
D899,493 | | Smart Glasses | | US | | March 22, 2019 | | Clifford M. Gross, David Cohen, Harrison Gross / Lucyd Ltd. | | 048856/0079 | | Issued | | October 20, 2020 | | October 20, 2035 |
D900,203 | | Smart Glasses | | US | | March 22, 2019 | | Clifford M. Gross, David Cohen, Harrison Gross / Lucyd Ltd. | | 048856/0079 | | Issued | | October 27, 2020 | | October 27, 2035 |
D899,494 | | Smart Glasses | | US | | March 22, 2019 | | Clifford M. Gross, David Cohen, Harrison Gross / Lucyd Ltd. | | 048856/0079 | | Issued | | October 20, 2020 | | October 20, 2035 |
D899,495 | | Smart Glasses | | US | | March 22, 2019 | | Clifford M. Gross, David Cohen, Harrison Gross / Lucyd Ltd. | | 048856/0079 | | Issued | | October 20, 2020 | | October 20, 2035 |
D899,496 | | Smart Glasses | | US | | March 22, 2019 | | Clifford M. Gross, David Cohen, Harrison Gross / Lucyd Ltd. | | 048856/0079 | | Issued | | October 20, 2020 | | October 20, 2035 |
D900,204 | | Smart Glasses | | US | | March 22, 2019 | | Clifford M. Gross, David Cohen, Harrison Gross / Lucyd Ltd. | | 048856/0079 | | Issued | | October 27, 2020 | | October 27, 2035 |
D900,205 | | Smart Glasses | | US | | March 22, 2019 | | Clifford M. Gross, David Cohen, Harrison Gross / Lucyd Ltd. | | 048856/0079 | | Issued | | October 27, 2020 | | October 27, 2035 |
D900,920 | | Smart Glasses | | US | | March 22, 2019 | | Clifford M. Gross, David Cohen, Harrison Gross / Lucyd Ltd. | | 048856/0079 | | Issued | | November 3, 2020 | | November 3, 2035 |
D900,206 | | Smart Glasses | | US | | March 22, 2019 | | Clifford M. Gross, David Cohen, Harrison Gross / Lucyd Ltd. | | 048856/0079 | | Issued | | October 27, 2020 | | October 27, 2035 |
D899,497 | | Smart Glasses | | US | | March 22, 2019 | | Clifford M. Gross, David Cohen, Harrison Gross / Lucyd Ltd. | | 048856/0079 | | Issued | | October 20, 2020 | | October 20, 2035 |
D899,498 | | Smart Glasses | | US | | March 22, 2019 | | Clifford M. Gross, David Cohen, Harrison Gross / Lucyd Ltd. | | 048856/0079 | | Issued | | October 20, 2020 | | October 20, 2035 |
D899,499 | | Smart Glasses | | US | | March 22, 2019 | | Clifford M. Gross, David Cohen, Harrison Gross / Lucyd Ltd. | | 048856/0079 | | Issued | | October 20, 2020 | | October 20, 2035 |
D899,500 | | Smart Glasses | | US | | March 22, 2019 | | Clifford M. Gross, David Cohen, Harrison Gross / Lucyd Ltd. | | 048856/0079 | | Issued | | October 20, 2020 | | October 20, 2035 |
D954,135 | | Round Smartglasses Having Flat Connector Hinges | | US | | December 12, 2019 | | Clifford M. Gross, David Cohen, Harrison Gross / Lucyd Ltd. | | 051469/0948 | | Issued | | June 7, 2022 | | June 7, 2037 |
D958,234 | | Round Smartglasses Having Pivot Connector Hinges | | US | | December 12, 2019 | | Clifford M. Gross, David Cohen, Harrison Gross / Lucyd Ltd. | | 051469/0948 | | Issued | | July 19, 2022 | | July 19, 2037 |
D955,467 | | Sport Smartglasses Having Flat Connector Hinges | | US | | December 12, 2019 | | Clifford M. Gross, David Cohen, Harrison Gross / Lucyd Ltd. | | 051469/0948 | | Issued | | June 21, 2022 | | June 21, 2037 |
D954,136 | | Smartglasses Having Pivot Connector Hinges | | US | | December 12, 2019 | | Clifford M. Gross, David Cohen, Harrison Gross / Lucyd Ltd. | | 051469/0948 | | Issued | | June 7, 2022 | | June 7, 2037 |
62/941,466 | | Wireless Smartglasses with Quick Connect Front Frames | | US | | November 27, 2019 | | Clifford M. Gross, David Cohen, Harrison Gross / Lucyd Ltd. | | 051165/0662 | | Non-Provisional Application filed on November 25, 2020; U.S. App. No. 17/104,849 | | n/a | | November 27, 2020 |
Application/Patent Number | | Title | | Country | | Filing Date | | Assignors/Assignee | | Reel/Frame No. | | Status | | Grant Date | | Anticipated Expiration Date |
D954,137 | | Flat Connector Hinges for Smartglasses Temples | | US | | December 19, 2019 | | Clifford M. Gross, David Cohen, Harrison Gross / Lucyd Ltd. | | 051469/0948 | | Issued | | June 7, 2022 | | June 7, 2037 |
D974,456 | | Pivot Hinges and Smartglasses Temples | | US | | December 19, 2019 | | Clifford M. Gross, David Cohen, Harrison Gross / Lucyd Ltd. | | 051469/0948 | | Issued | | n/a | | n/a |
11,282,523 | | Voice Assistant Management | | US | | March 25, 2020 | | Harrison Gross / Lucyd Ltd | | 052245/0348 | | Issued | | March 22, 2022 | | June 27, 2040 |
29/743,256 | | Wayfarer Smartglasses | | US | | July 20, 2020 | | Clifford M. Gross, David Cohen, Harrison Gross / Lucyd Ltd. | | 057651/0844 | | Pending | | n/a | | n/a |
D951,334 | | Round Smartglasses | | US | | July 20, 2020 | | Clifford M. Gross, David Cohen, Harrison Gross / Lucyd Ltd. | | 057651/0844 | | Issued | | May 10, 2022 | | May 10, 2037 |
17/104,849 | | Wireless Smartglasses with Quick Connect Front Frames | | US | | November 25, 2020 | | Clifford M. Gross, David Cohen, Harrison Gross / Lucyd Ltd. | | 057652/0218 | | Pending | | n/a | | n/a |
29/806,200 | | Smartglasses | | US | | September 1, 2021 | | Clifford Gross, Harrison Gross / Lucyd Ltd. | | 057652/0350 | | Pending | | n/a | | n/a |
29/806,204 | | Smartglasses | | US | | September 1, 2021 | | Clifford Gross, Harrison Gross / Lucyd Ltd. | | 057652/0430 | | Pending | | n/a | | n/a |
29/806,207 | | Smartglasses | | US | | September 1, 2021 | | Clifford Gross, Harrison Gross / Lucyd Ltd. | | 057652/0674 | | Pending | | n/a | | n/a |
29/806,209 | | Smartglasses | | US | | September 1, 2021 | | Clifford Gross, Harrison Gross / Lucyd Ltd. | | 057652/0794 | | Pending | | n/a | | n/a |
207516 | | Smartglasses | | Canada | | October 29, 2021 | | Clifford Gross, Harrison Gross / Lucyd Ltd. | | n/a | | Pending | | n/a | | n/a |
207517 | | Smartglasses | | Canada | | October 29, 2021 | | Clifford Gross, Harrison Gross / Lucyd Ltd. | | n/a | | Pending | | n/a | | n/a |
207518 | | Smartglasses | | Canada | | October 29, 2021 | | Clifford Gross, Harrison Gross / Lucyd Ltd. | | n/a | | Pending | | n/a | | n/a |
207519 | | Smartglasses | | Canada | | October 29, 2021 | | Clifford Gross, Harrison Gross / Lucyd Ltd. | | n/a | | Pending | | n/a | | n/a |
29/814,016 | | Safety Smartglasses | | US | | November 2, 2021 | | Clifford M. Gross, David Cohen, Harrison Gross / Lucyd Ltd. | | 05872/0894 | | Pending | | n/a | | n/a |
29/814,017 | | Safety Shields | | US | | November 2, 2021 | | Clifford M. Gross, David Cohen, Harrison Gross / Lucyd Ltd. | | 058720/0955 | | Pending | | n/a | | n/a |
63/274,920 | | Safety Glasses | | US | | November 2, 2021 | | Clifford Gross / Lucyd Ltd. | | 058720/0961 | | Non-Provisional Application filed on October 21, 2022; U.S. App. No. 18/048,715 | | n/a | | n/a |
29/815,040 | | Charging Cradle | | US | | November 10, 2021 | | Clifford Gross / Innovative Eyewear, Inc. | | 058721/0019 | | Pending | | n/a | | n/a |
207956 | | Safety Smartglasses | | Canada | | November 17, 2021 | | Clifford M. Gross, David Cohen, Harrison Gross / Lucyd Ltd. | | n/a | | Pending | | n/a | | n/a |
207957 | | Safety Shields | | Canada | | November 17, 2021 | | Clifford M. Gross, David Cohen, Harrison Gross / Lucyd Ltd. | | n/a | | Pending | | n/a | | n/a |
2021307950576 | | Safety Smartglasses | | China | | December 2, 2021 | | Clifford M. Gross, David Cohen, Harrison Gross / Lucyd Ltd. | | n/a | | Pending | | n/a | | n/a |
ZL 2021307955902 | | Safety Shields | | China | | December 2, 2021 | | Clifford M. Gross, David Cohen, Harrison Gross / Lucyd Ltd. | | n/a | | Issued | | May 3, 2022 | | December 1, 2036 |
63/297,056 | | Charging Cradle for Smartglasses | | US | | January 6, 2022 | | Clifford Gross / Innovative Eyewear, Inc. | | 058721/0083 | | Non-Provisional Application filed on December 29, 2022; U.S. App. No. 18/147,002 | | n/a | | n/a |
Application/Patent Number | | Title | | Country | | Filing Date | | Assignors/Assignee | | Reel/Frame No. | | Status | | Grant Date | | Anticipated Expiration Date |
212589 | | Charging Cradle | | Canada | | May 9, 2022 | | Clifford Gross / Innovative Eyewear, Inc. | | n/a | | Pending | | n/a | | n/a |
ZL 2022302715131 | | Charging Cradle | | China | | May 10, 2022 | | Clifford Gross / Innovative Eyewear, Inc. | | n/a | | Issued | | October 21, 2022 | | May 9, 2037 |
18/048,715 | | Safety Glasses | | US | | October 21, 2022 | | Clifford Gross / Lucyd Ltd. | | n/a | | Pending | | n/a | | n/a |
3180624 | | Safety Glasses | | Canada | | November 1, 2022 | | Clifford Gross / Lucyd Ltd. | | n/a | | Pending | | n/a | | n/a |
202211367067X | | Safety Glasses | | China | | November 2, 2022 | | Clifford Gross / Lucyd Ltd. | | n/a | | Pending | | n/a | | n/a |
18/147,002 | | Charging Cradle for Smartglasses | | US | | December 27, 2022 | | Clifford Gross / Innovative Eyewear, Inc. | | n/a | | Pending | | n/a | | n/a |
29/870,951 | | Smartglasses | | US | | February 9, 2023 | | Harrison Gross, David Cohen, Breno Fuzette, Matthew Gale / Innovative Eyewear, Inc. | | n/a | | Pending | | n/a | | n/a |
29/870,952 | | Smartglasses | | US | | February 9, 2023 | | Harrison Gross, David Cohen, Breno Fuzette, Matthew Gale / Innovative Eyewear, Inc. | | n/a | | Pending | | n/a | | n/a |
29/870,957 | | Smartglasses | | US | | February 9, 2023 | | Harrison Gross, David Cohen, Breno Fuzette, Matthew Gale / Innovative Eyewear, Inc. | | n/a | | Pending | | n/a | | n/a |
29/870,958 | | Smartglasses | | US | | February 9, 2023 | | Harrison Gross, David Cohen, Breno Fuzette, Matthew Gale / Innovative Eyewear, Inc. | | n/a | | Pending | | n/a | | n/a |
29/870,959 | | Smartglasses | | US | | February 9, 2023 | | Harrison Gross, David Cohen, Breno Fuzette, Matthew Gale / Innovative Eyewear, Inc. | | n/a | | Pending | | n/a | | n/a |
29/870,960 | | Smartglasses | | US | | February 9, 2023 | | Harrison Gross, David Cohen, Breno Fuzette, Matthew Gale / Innovative Eyewear, Inc. | | n/a | | Pending | | n/a | | n/a |
29/870,961 | | Smartglasses | | US | | February 9, 2023 | | Harrison Gross, David Cohen, Breno Fuzette, Matthew Gale / Innovative Eyewear, Inc. | | n/a | | Pending | | n/a | | n/a |
29/870,965 | | Smartglasses | | US | | February 9, 2023 | | Harrison Gross, David Cohen, Breno Fuzette, Matthew Gale / Innovative Eyewear, Inc. | | n/a | | Pending | | n/a | | n/a |
29/870,966 | | Smartglasses | | US | | February 9, 2023 | | Harrison Gross, David Cohen, Breno Fuzette, Matthew Gale / Innovative Eyewear, Inc. | | n/a | | Pending | | n/a | | n/a |
29/870,968 | | Smartglasses | | US | | February 9, 2023 | | Harrison Gross, David Cohen, Breno Fuzette, Matthew Gale / Innovative Eyewear, Inc. | | n/a | | Pending | | n/a | | n/a |
29/870,970 | | Smartglasses | | US | | February 9, 2023 | | Harrison Gross, David Cohen, Breno Fuzette, Matthew Gale / Innovative Eyewear, Inc. | | n/a | | Pending | | n/a | | n/a |
29/870,972 | | Smartglasses | | US | | February 9, 2023 | | Harrison Gross, David Cohen, Breno Fuzette, Matthew Gale / Innovative Eyewear, Inc. | | n/a | | Pending | | n/a | | n/a |
29/870,974 | | Smartglasses | | US | | February 9, 2023 | | Harrison Gross, David Cohen, Breno Fuzette, Matthew Gale / Innovative Eyewear, Inc. | | n/a | | Pending | | n/a | | n/a |
29/870,975 | | Smartglasses | | US | | February 9, 2023 | | Harrison Gross, David Cohen, Breno Fuzette, Matthew Gale / Innovative Eyewear, Inc. | | n/a | | Pending | | n/a | | n/a |
18/189,547 | | System, Apparatus, and Method For Using a Chatbot | | US | | March 24, 2023 | | Harrison Gross, Clifford Gross / Innovative Eyewear, Inc. | | n/a | | Pending | | n/a | | n/a |